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14 Scary Retirement Stats That'll Motivate You to Save and Invest

By Catherine Brock - Aug 26, 2022 at 7:00AM
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14 Scary Retirement Stats That'll Motivate You to Save and Invest

Prioritizing your retirement

Waiting to save for retirement? You're not the only one. According to a report from Employee Benefit Research Institute (EBRI), 33% of workers say retirement savings aren't a priority relative to their current household needs. Common obstacles to saving include paying off a child's education or paying down debt.

The trouble is, delaying your retirement plan for too long puts you in a hole that's hard to climb out of. Increasingly, retirement readiness reports and studies show that too many savers are getting stuck in that hole.

Read on for 14 scary retirement statistics that should motivate you to stop waiting and start saving now.

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1. You may need more than $1 million

According to USA Today, the average American will spend $987,000 in retirement. By location, average retirement spending ranges from $885,000 in Mississippi to $1.5 million in Hawaii.

More disturbing is that inflation will raise that million-dollar benchmark over time. You might get by on $1 million if you're retiring soon. But that savings balance won't be enough if your retirement is decades away.

ALSO READ: Do You Really Need $1 Million to Retire Comfortably?

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2. Median retirement balance for older savers is $89,716

According to Vanguard's "How America Saves 2022" report, the median retirement balance for savers aged 55 to 64 is $89,716. As a reminder, the median is the midpoint value. In other words, half of that group has saved less than $89,716.

These older savers have, at most, about 10 years to grow their savings by 10 times to get close to the $1 million milestone. Considering the average growth of the stock market is about 7% annually, they'll fall short without a big cash windfall.

Note that the Vanguard report only tracks balances in Vanguard workplace retirement accounts. So, it is possible some of these savers have higher balances in other accounts, like an IRA.

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3. The average Social Security retirement benefit is $19,476

If your plan is to rely on Social Security in retirement, you might want to rethink that. The average Social Security retirement benefit is $19,476 annually. For someone who makes an average salary of $54,000 a year, that benefit replaces less than 40% of working income.

You might have a higher-than-average Social Security benefit coming your way, but only if you have higher-than-average income. That usually means your retirement income needs are higher, too. Ultimately, it doesn't change the conclusion that you can't live comfortably on Social Security alone.

ALSO READ: Why Is 2022's Average Social Security Benefit Lower Than You Might Expect?

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4. 25% of senior households rely heavily on Social Security

Picture your household living on retirement income of about $20,000 annually. There are households that do it. One Social Security bulletin estimates that 25% of senior households count on Social Security for 90% or more of their family income.

That's not a fun, carefree retirement. It's more likely a grind that involves scrimping and, possibly, living with family.

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5. Retired couples could spend $662,000 on healthcare in retirement

Healthcare expenses could account for two-thirds of your total retirement spending. A recent report from healthcare data provider HealthView Insights estimates that the average healthy couple that retired in 2021 will spend $662,156 on healthcare in retirement.

You might assume these numbers don't apply to you if you're healthy. Think again. The report also concludes that healthy retirees can spend more cumulatively on healthcare than chronically ill retirees, because they live longer.

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6. Healthcare expenses will grow twice as fast as the U.S. inflation rate

The HealthView report also suggests that healthcare expenses will continue their historical trend of growing twice as fast as general inflation.

As procedural costs rise, it drives increases to Medicare and Medigap premiums. Seniors' out-of-pocket expenses like co-payments and coinsurance will also go up. In other words, you might plan on healthcare costing well more than $662,000 if you're retiring 10 or 20 years from now.

ALSO READ: How Much Will Healthcare Cost in Retirement? Prepare to Be Shocked

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7. Two-thirds of retirees are forced into early retirement

Some seniors plan on working indefinitely to make up for falling behind on their retirement savings. Unfortunately, that's not always a reliable solution.

According to an EBRI report, 47% of retirees retired earlier than they'd planned. A full two-thirds of that group said they retired for reasons outside their control. Those reasons included health problems, corporate downsizing, and changing job requirements.

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8. 36% of retirees have higher-than-expected living expenses

EBRI also reports that 36% of retirees are absorbing higher-than-expected living expenses. This points to the importance of saving even more -- essentially giving yourself a buffer to cover unexpected costs. The buffer allows you to increase your retirement distributions slightly as needed, hopefully without risking insolvency.

If you don't have that buffer, your only option is downgrading your lifestyle.

ALSO READ: What Will My Living Expenses in Retirement Be?

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9. 33% of 401(k) account holders don't know how long their savings will last

Charles Schwab's 2022 401(k) Participant Study reports that one-third of 401(k) savers don't know how long their savings will last. The other two-thirds of savers believe their funds will last 23 years on average.

The longevity of your savings hinges on your investment returns and your annual withdrawals. If you're invested in 50% stocks and 50% bonds and you withdraw 4% annually, your savings should last three decades or more.

The trouble arises when the 4% withdrawal isn't enough to pay your bills. At higher withdrawal rates, your savings will evaporate faster.

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10. 41% of retirement savers don't know how much to save

Charles Schwab also reports that 41% of retirement savers need help calculating their target savings balance.

For a quick-and-dirty estimate, multiply your annual salary by 15 and 25. That gives you a target savings range based on your current lifestyle. The low end of the range assumes your Social Security benefit will replace 40% of your income. The rest of your retirement income will come from your savings.

The high end of that range provides more leeway for lower-than-expected Social Security income and higher-than-expected healthcare expenses.

ALSO READ: How Much Money Should I Have Saved by 35?

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11. 69% of plan sponsors worry about inflation

According to investment management company BlackRock, nearly two-thirds of retirement plan sponsors worry that inflation will erode savers' nest eggs.

As of the July 2022 inflation report, costs are 8.5% higher than they were one year before. To put that in perspective, 2% is considered a healthy rate of inflation.

Big increases in living expenses chip away at the purchasing power of your savings. As a result, you'll need higher and higher balances to fund the retirement you want.

ALSO READ: Is Inflation Affecting Your Retirement Savings Strategy? 3 Things to Try Right Now

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12. 56% of working Americans will save less than $500,000

According to investment manager Schroders, 56% of working Americans expect to save less than $500,000 for retirement. With a 4% withdrawal rate, that savings balance provides income of $20,000 per year. After you add in an average Social Security benefit, that delivers an estimated total retirement income of about $40,000 per year.

That's equivalent to a 25% pay cut from the average American worker's salary.

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13. It can take 30 years and $1,000 monthly to save $1 million

So what does it take to save $1 million? If you invest your money mostly in stocks, you'd need to save $1,000 monthly for 29 years to reach the million-dollar milestone. That assumes your savings grow 7% annually on average, which aligns with the stock market's historic, long-term performance.

In a shorter time frame, the monthly investment goes up dramatically. Say you have only 20 years between now and retirement. You'd need to save and invest upward of $2,000 monthly to amass $1 million.

ALSO READ: 6 Steps to Saving $1 Million Before You Retire

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14. 34% of savers contribute 16% to 20% of income

Now, for some good news. BlackRock's 2022 retirement study reports that 34% of workplace savers maintain a retirement contribution rate of 16% to 20%. That's a strong savings rate. If these savers keep up that activity over most of their careers, they're well positioned to enjoy a comfortable retirement.

Experts generally recommend savers contribute 15% of their salary, up to the maximum contribution allowed by the IRS. In 2022, that maximum is $20,500 or $27,000 for savers 50 and older.


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Catching up on your retirement plan

If you're behind on your retirement savings, increasing your contributions now is your top priority. In investing, time is either your best friend or your worst enemy. When you stay invested longer, your wealth potential is higher. But leave yourself a short investment window and your potential is much lower.

Start by using any tax-advantaged accounts available to you. 401(k)s and health savings accounts (HSAs) are great options. If you don't have those, save to an IRA. Once you max out those accounts, save additional funds to a taxable brokerage account. You won't get the tax perks, but you won't have the withdrawal restrictions, either.

Get moving on your retirement plan today and challenge yourself to defy the statistics. Just because others are moving toward a retirement disaster doesn't mean you have to do the same.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Catherine Brock has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

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