Empty Pockets

Image source: Flickr user Dan Moyle. 

Americans sure are good at spending money. In fact, according to a recent study by CardHub, the average household credit card debt is now at its highest level since 2008. Unfortunately, we're not quite as good at saving money as we are at spending it. Here are the facts about the state of saving money in America, and what you can do if you've fallen behind.

Too many American households live paycheck to paycheck
One of the best ways to determine if we're doing a good job of saving is evaluating our ability to handle unforeseen expenses. And, in this area, we're failing miserably.

According to a Federal Reserve report, nearly half of Americans couldn't cover a $400 emergency expense without borrowing the money or selling something. More than half of households have less than one month's worth of income in a readily available savings account, far from the six-month emergency fund many experts recommend.

Even more alarming is that many people have no savings at all. In fact, almost 30% report having a zero balance, and 62% have less than $1,000 in savings, according to a survey by GOBankingRates.com. An additional 21% report having no savings account whatsoever.

Many people assume they'll make the same amount of money in the future, but this is a bad assumption to make. In fact, according to a report by the Pew Charitable Trusts, almost half of households will experience a 25% change in income in any given two-year period, either up or down.

The point is that an emergency fund is absolutely essential to financial health. Without the ability to cover unforeseen expenses, it can be extremely difficult to stick to a retirement savings plan or to prevent taking on excessive credit card debt. And, without adequate savings, a sudden drop in income can be catastrophic.

The average American doesn't have enough retirement savings
It may surprise you (or not) to learn that the average American has saved significantly less than they're likely to need for retirement. The short version is that the median retirement savings is $63,000, but it's more helpful to look at the data by age group. According to Fidelity, here's how much Americans should have in retirement savings, as a multiple of their annual income. Since the average household earns just under $54,000, I've also included what the average should be for each age group.

If your age is...

You should have retirement savings of this many times your annual income...

Based on the average American's household income, this translates to an average of...



















However, a recent study by Transamerica shows that in reality, the average American is pretty far behind.

Age Group

Median Retirement Savings











For example, according to the first table, the average 55-year-old should have $378,000 saved for retirement, but we can see from the actual data that the average 50-something actually has less than a third of this amount.

In fairness, this includes savings in retirement accounts such as 401(k)s and IRAs, but some workers also have defined benefit plans (such as pensions) that are not included in this data. Even so, the average study participant estimated they would need about $1 million to retire comfortably, so it's safe to say most people have some work to do.

The stats aren't all bad
The Transamerica study did reveal some good news as well. For starters, it appears the younger generations are doing a pretty good job so far -- 67% of 22-year-olds are already saving for retirement, and this increases to 76% of 30-somethings.

In addition, 30-somethings are not only saving, but are starting earlier than previous generations. The average 30-something worker started saving for retirement at 25, while those who are in their 60s now waited until 35, on average.

So, maybe the "retirement crisis" will not be as bad as it seems for younger Americans. However, those in their 40s, 50s, and 60s have some catching up to do.

If you have work to do...
If you're still working, the good news is that there is still time to make a significant impact on your quality of life in retirement, even if you're just a few years away.

Thanks to retirement catch-up rules, workers over 50 have the ability to save an additional $1,000 in their IRAs ($6,500 total) and an extra $6,000 in their 401(k) plan ($24,000 total), so if you get aggressive now, it could really add up by the time you're at retirement age.

One option that can help you save more for retirement and build up your emergency savings at the same time is a Roth IRA. You can save up to $5,500 per year in a Roth IRA ($6,500 if over 50), and since contributions are made on an after-tax basis, your eventual withdrawals in retirement will be 100% tax free, no matter how well your investments perform. And, unlike with a traditional IRA, you are free to withdraw your Roth contributions at any time, for any reason, without paying an early withdrawal penalty. This makes them great emergency saving vehicles in addition to their merits as retirement accounts. In fact, I keep some of my own retirement savings in a Roth IRA for this reason.

To sum it up, most Americans have some catching up to do when it comes to saving money. However, with a little discipline, you could get back on track more quickly than you think.

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