The Shockingly Low Amount Most Americans Are Saving for Retirement

Are you beating the median when it comes to your retirement savings?

Christy Bieber
Christy Bieber
Mar 9, 2019 at 6:34AM
Investment Planning

Retirement is an expensive endeavor. After all, you're going to have to support yourself for decades without a paycheck. Social Security will help, but it won't be sufficient to give you the funds you need, as it's intended to replace only around 40% of preretirement income when experts say you need at least 80%. Since most employers don't provide guaranteed income in the form of a defined pension benefit anymore, it's up to you to save enough to have security in retirement.

Unfortunately, Americans are falling far short in accomplishing this goal. Research from the Stanford Center on Longevity shows how much we're saving at every age group -- and it turns out it's not nearly enough.

Worried looking older woman.

Image source: Getty Images.

How much are Americans saving for retirement?

The Stanford data takes a look at contributions made to work-based retirement plans by families eligible to contribute. The chart below shows the median savings within each age group, based on a percentage of income, including both employee contributions and total contributions including employer 401(k) match. 

Age Group Median Employee Contribution as a % of Income Median Total Contribution With Match
25-34 4.00% 6.21%
35-44 4.04% 7.22%
45-54 4.84% 8.14%
55-64 4.86% 7.54%

Data source: Stanford Center on Longevity.

As the data shows, the median total contribution, including employer match, is well below 10% for every age group. And, when considering employee contributions alone, the median contribution to employer-provided retirement plans among workers of all ages is less than 5% of annual income.  

Stanford also assessed whether workers might be contributing to IRAs or other tax-advantaged retirement plans outside of work -- thus increasing total annual retirement contributions. Unfortunately, for most employees, this isn't the case. Just 17.7% of workers age 25 to 34 have IRAs or Keogh accounts. The number of families with outside accounts increases slightly by age: 26.9% of workers ages 35-44 have these accounts; as do 30.1% of workers ages 45-54 and 36.4% of workers aged 55 to 64. 

This means the majority of families included in the survey aren't making up for low contributions to employer-sponsored plans by saving for retirement elsewhere. In fact, Stanford also looked at the percentage of families within each age group who were hitting certain thresholds for retirement savings. They found that:

  • Among families age 25-34, just 29.3% of families are contributing at least 10% of income to retirement accounts. Only 10.2% contribute at least 15% of income. 
  • Among families ages 35-44, 30.8% contribute at least 10% of income to retirement, while only 12.3% of families contribute at least 15%. 
  • Among families ages 45-54, 38% contribute at least 10% of income to retirement, and 15.8% contribute 15% or more. 
  • Among families ages 55-54, 36.8% contribute at least 10% of income to retirement and 18.3% contribute at least 15%. 

In no case do a majority of Americans make contributions of at least 10% of income to retirement savings accounts. 

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Why are low savings rates a problem?

According to the Stanford report, the median contributions made by employees in all age groups is well below what workers should be saving. In fact, according to expert projections, Stanford summarizes:

  • Workers who start saving at 25 need to save at least 10% to 17% of income to retire at 65.
  • Workers who start saving at 35 need to save at least 15% to 20% of income to retire at 65.
  • Workers who start saving at 45 need to save at least 25% to 27% of income to retire at 65.

The chart in this article also shows how much you'd end up with if you saved 10% of a median income starting at different ages. Saving 10% of a median income would provide a nest egg topping $1 million only if you started saving before age 30 -- and $1 million probably won't be a big-enough nest egg by the time you hit retirement anyway. 

Unfortunately, most Americans aren't even getting close to that 10% mark, and saving just 6.21% to 8.14% of income is going to leave you far short of the money you need to support yourself during your senior years.

Start saving more for retirement today

If you're saving any of your income, you've taken the most important first step to get ready for a secure retirement. Now you just need to take your efforts to the next level.

You should work up to saving 15% to 20% of your household income for retirement as quickly as possible so you'll end up with enough money. The younger you are when you start saving, and the greater the percentage of income you contribute, the more financially secure you'll be as a senior -- so it's worth the effort.