Happiness in retirement is measured in many ways, so comparing yourself financially with the Joneses may not be the best way to see how your plans for retirement stack up to the average American.
However, because comparisons can offer important insight that you can use to determine if you're on track and that can lead to important changes in your savings strategy, let's see how you match up.
"This suspense is terrible. I hope it will last." -- Oscar Wilde
I'll get to the average American's savings figure in a moment, but first, let me explain why I believe it's absolutely critical to be putting money away for your golden years.
You see, a lot of Americans skimp on retirement savings because they believe that they'll be able to rely on Social Security income in retirement.
Certainly, Social Security is an important source of retirement income for retirees, but you might not want to count on it too much. Here's why:
- Social Security payments really aren't that big.
- Social Security's future is arguably uncertain.
- A bigger chunk of Social Security may end up being used for Medicare premiums.
According to the Social Security Administration, the average retired American couples gets $2,212 per month, or roughly $26,500 per year, in Social Security income. That's not a lot of money when you consider that the average American household earned $53,657 in 2014 and the average annual expenses for an American retired couple over age 65 were $41,403 in 2013.
To be blunt, Social Security income probably won't provide you with enough money to live the type of retirement you have in mind, especially if the number-crunchers at the Congressional Budget Office are correct.
The CBO estimates that the Social Security Trust Fund will be depleted in 2029, and that could result in a 29% across-the-board cut in monthly Social Security benefits in 2030.
It gets worse.
Premiums for Part D Medicare insurance, which covers drug costs, are often withdrawn directly from Social Security checks and those premiums are growing more quickly than Social Security income. Also, Medicare premium surcharges that come directly out of Social Security income are determined by income limits that aren't adjusted annually for inflation. As a result, Americans face a one-two punch that could mean Medicare premiums take a much bigger cut of Social Security income in the future than they do today.
OK, you've been patient enough
According to a December study from Transamerica, the total household retirement savings of American workers age 50 and older is a median $135,000.
However, that median only tells part of the story.
The study also found that there's a wide gap between the amount of money saved by unmarried and married Americans.
Specifically, unmarried Americans over age 50 have only saved a median $48,000 in retirement savings, while their married counterparts have saved a median $177,000.
Ramp up your savings
Most Americans get their biggest paychecks in the decade before retiring, and that means that if your retirement savings plan has fallen behind, there's still time to catch up.
First, take a hard look at your spending and consider what percentage of your income your saving in retirement accounts. Can you shift some of your discretionary spending every month to your retirement savings?
In 2016, everyone can contribute up to $18,000 to a workplace retirement plan, such as a 401(k) plan, and if you're over 50, the IRS lets you put an additional $6,000 in as a catch-up contribution. The IRS allows catch-up contributions for both traditional IRAs and Roth IRAs. In 2016, the normal contribution limit to an IRA is $5,500, but people over 50 can contribute an additional $1,000.
Those catch-up contributions can really add up. For example, let's assume Jim is 50, has already saved $100,000 and currently contributes the $18,000 maximum to his 401(k) plan. If Jim earns a 6% hypothetical return over the next 15 years, he could retire at age 65 with a $658,623.28 nest egg. Pretty good, right? Now, let's assume Jim contributes the $6,000 catch-up contribution every year, too. If he does, then his nest egg would balloon by nearly $140,000 to $798,279.10. That may not be enough extra money to retire to the island of your dreams, but it could be enough to ensure a financially secure retirement.