Will retirement break the bank? It's time to do a reality check before you retire. Source: 401kcalculator.org

With all of the fear about the Social Security Trust going broke, the death of the pension, and few people having very much saved for retirement, it may seem like an impossible goal for most to ever reach, but a quality retirement doesn't have to be a pipe-dream.

It doesn't matter if you're closer to retirement than you care to admit -- and less prepared than you expected to be -- or still decades away. There are steps you can take to give yourself the best shot at the kind of retirement you want. Let's take a look at where the "average" person might stand. 

Sobering statistics 
Earlier in June, I wrote this article with a number of stats that show -- on average -- a lot of pre-retirees really may not be ready for retirement. A recap:

  • According to Vanguard (with 3 million participants) the median (the number that half of total participants are above, and half are below) 401(k) balance for workers over 65 was less than $75,000. 
  • The average monthly Social Security benefit paid in December 2013 was $1,451 for men, $1,134 to women. 
  • Only 9% of retirees receive a private pension; 8% a public pension. This is actually higher than in the 1960s.  

Two studies from the Employee Benefit Research Institute, that covers more than 26 million 401(k) plan participants, and 20 million IRA account holders, offer some compelling statistics worth sharing. (Note: the study data is from 2013.)

  • Median 401(k) participant age was 46. The median account balance was $18,433. The average account balance was over $72,000, but only 25% of participants had a balance that size or larger. 
  • Only 60% of participants had more than $10,000. 
  • Age, income, and tenure are major factors for 401(k) balances. 

The last point is worth noting, because the challenge with 401(k) data studies is that it only captures the value of each 401(k) account, and not what is held by each participant. In other words, if you have an old 401(k) (or more than one) at prior employers, the study won't identify which accounts belong to each person. So this can skew the data, especially considering that the modern workforce has become much more mobile. 

Source: EBRI Issue Brief #408

For more context, let's take a look at some IRA account balance data. From the other EBRI study:

Source: EBRI issue brief #414.

As you can see in the blue bars, median IRA balances sharply increase for those 60 and above, largely because of rollovers from 401(k)s. According to the study, 14.5 times as many dollars added to IRA balances come from rollovers, versus new contributions. 

Where do you stand against the average?
Let's use the average and median data above to run some rough estimates of what the "average" person might expect to be getting in retirement income today:

  • Social Security: Average married couple (man and woman) would collect $31,020 per year. 
  • 401(k): Based on 4% distribution rule, median account balance (from Vanguard study), would collect $3,000 per year per person. 
  • EBRI IRA study: Based on 4% distribution rule, median individual balance, would collect $3,011 per year per person.

Add it all up, and that's $43,042 per year for a married couple, with the caveat that it's based on incomplete per-person data for 401(k) participants. That's below the median U.S. household income, estimated to be around $51,000 in 2014. It also doesn't include any pension income (which most won't get) or any income from work, but it also assumes that the average person would be getting income from Social Security, a 401(k), and IRA. And that may not be the case for everyone. 

The numbers above can show where you stand against the average, but it's more important to know how much you need in retirement. 

Living on your retirement income: Don't just assume you're ready 
This simple piece of advice can make the difference between a satisfying retirement and a rude awakening: It's probably worth trying to adjust to the level of income you'll expect to get in retirement, well before you actually retire. Especially if the numbers above look a lot like where you stand. 

It's easy to just assume you can make the transition, but it may be easier said than done. By taking steps to reduce your expenses now -- and direct the money you save to your retirement accounts -- you can start developing the kinds of habits that will help you sustain your retirement savings.

You may also learn before you retire that you may not have enough to maintain the lifestyle you were planning. But it's a lesson you'll be glad to learn before you retire, while you have time to do something about it.