May 14, 2024

The Concerning State Of Retirement Savings In The US

In this podcast we discuss a concerning new study that finds a good chunk of Americans are not achieving financial security in retirement. We dig into some of those numbers and talk about reasons behind the statistics. You will come away with ideas and tips to help ensure that you are becoming financially secure in retirement.
Retired couple enjoying the beach

Kevin Zywna, Wealthway Financial Advisors:​ What we’re going to talk about tonight, between phone calls, is the fact that we believe most everyone in this country have the opportunity for financial security – if they choose it. But like I say at the intro to almost every show, it takes some time, it takes some effort, and it takes some knowledge. Well, there’s a concerning new study out that says that a good chunk of us are not really achieving financial security. And so I’m going to dig into some of those numbers and talk about some of the reasons behind that. And hopefully give you some ideas and tips and pointers to help make sure that you are becoming financially secure.

What Is The State of Retirement Savings In The US?

So first off, recent study by a reputable financial website determine that about 28% of people have nothing saved for the future. Nothing saved for retirement. 39% are not contributing to a retirement account. Another 30% don’t think they’ll ever be able to retire. So about a third of this country, one of the wealthiest countries on the planet, about a third of the people have nothing saved for retirement, are not contributing to a retirement plan or retirement fund, and don’t think that they’ll ever be able to retire.

How does that look like broken down among age groups, to put a little finer point on those numbers? Well, the youngsters actually do pretty well. If you are in the 18 to 24 year old age group, only about 28% of those have nothing saved for retirement. That means 72% do. I think that’s fantastic for that age group.

25 to 34, 30% have nothing saved. 35 to 44, 35% have nothing saved. 45 to 54, 33% have nothing saved for retirement. And 55 to 64, in the retirement go-zone, 25% have nothing saved for retirement. Ages 55 to 64, that is certainly concerning information.

But not really surprising, at least not to me, someone who has spent his entire adult career in and around the financial services industry, dealing with money, dealing with people with money in the banking system, in financial services. This is one of the things that we talk about a fair amount on the show, but not so directly is that just trying to get people to begin the process of saving, of developing good financial habits, of developing a solid financial foundation to then use as a springboard to healthy retirement savings.

Healthy Retirement Savings Begins By Taking Action

Just getting people to start is hard. It’s probably the hardest part of the process. It’s not the technicalities around what accounts to use, or which investments to buy, or what insurance products to use, or how to lower your taxes. It’s the behavior of each and every one of us that is probably the biggest determinant of determining how much money we ultimately save and have for use and enjoyment over the course of our lifetime.

So about a third of us have not done anything meaningful towards saving for retirement. But I do find some interesting points out of the study. Even though a big chunk of people don’t have much saved, most of us kind of know, or have a sense of what we should have, in terms of savings for retirement. And from the study, they found that about 25% of people think that they can retire with less than $500,000. Okay, maybe, possibly, certainly depends on your current income, and what you hope to accomplish out of retirement, but you know, okay, 25%, up to $500,000. Then another 25% thinks that it will take somewhere between half a million and a million, so 500 to a million. All right now that’s probably pretty reasonable for most middle class people in the United States to have saved up to maintain a comfortable retirement. And then another 30% expect that their retirement needs will cost higher than a million dollars. And usually, the more you make, the more you need to save in order to support the higher income that it takes to enjoy the lifestyle that you had up to that point.

Answering The Retirement Savings Question, “How Much Do I Need?”

So how much actually gets saved, though, really depends on your lifestyle. And a lot of people, when they come to us versus potential clients will say, “how much do I need.” And believe me, we can put a very fine point on that, but not right out of the gate. Out of the gate, we need to determine what is your current lifestyle? Well, first of all, if you come to us with specific goals, and say something like “when I retire, I want to have my house paid off. I want to have a vacation home. I want to buy a boat and I want to enjoy a new luxury car every three to five years.” Okay, then we can plan for that.

I will tell you, however, that I don’t believe anyone has ever come to me or our firm with that specific of objectives regarding retirement. Most people don’t have that specific of an objective and that’s okay. You don’t have to but if someone does, we can figure that out. What most people do is they come in with a vague notion of “I want to be okay.” What does “being okay” mean? What do you mean by “I want to be okay.”? Well, what we have determined through the years “being okay” means is “I want to be able to maintain at least my existing lifestyle. Better than there is this lifestyle, that would be great. But if I can just comfortably maintain my existing lifestyle, I would be happy.” And so that’s where we usually start the analysis and start, the formation of the financial plan is – what is your current lifestyle today? And when we say lifestyle in our world, we mean – how much are you spending, you’re spending patterns and habits and amounts are your lifestyle.

In a perfect world, everyone would have a budget and know how much they’re spending. We don’t live in a perfect world. No one has a budget, and no one knows how much they’re spending. That’s okay, too, we can figure that out. We know by taking your known income sources, looking at tax returns, doing checking bank account values, we have a good sense. We can figure it out. We can do the math on what you’re actually spending on an annual and monthly basis. And so we can tell you what your current lifestyle is. And then from there, we build. If we know your current lifestyle, today, we can project 10, 20, 30 years into the future, about how much you will need to have unknown income sources and in savings in order to replicate that current lifestyle. So while about a third of the country does not have much or anything saved. A good chunk of the country knows that they need to have, probably in today’s dollars, around $500,000 to maybe a million to help support your current lifestyle.

How Much Retirement Savings Do Americans Have?

And then, but where are people really? People who about a third of people have nothing saved for retirement, those that do have something saved don’t have a lot saved. So for example, about 71% of the US population is heading towards retirement with less than $100,000 saved up for retirement. 10% have about $50 to $100K, 33% have less than $50K, and then there’s that 28% that have nothing saved for retirement. So, about 71% of the population as $100,000 or less saved for retirement when most of the population recognizes you probably need in today’s dollars, four or $500,000 to replicate current middle class lifestyle. All right, those are some deep facts and figures.

Tonight we’re talking about a recent survey out about the concerning state of retirement savings in the United States. And the first segment there was saying that about a third of the US population working population age 18 to 64 has nothing saved for retirement. And of those people who have something saved about 70% have something saved. They have less than $100,000 saved, so not really enough for most middle class people to maintain their current lifestyle.

Take Advantage Of Company Sponsored Retirement Savings Plans

So what are some of the things that you can do about it? So, first off, the one, one of the easiest, simplest and best things that you can do to help set yourself up for a good, robust, healthy, vibrant retirement is take advantage of your company sponsored retirement plan. Or if you’re one of the few people in this country that works for a very small employer that does not have a company retirement plan, then you have the ability to contribute to Traditional and Roth IRA accounts. So there are tax advantaged tax preferred savings vehicles, either through your employer or available to you individually, personally, outside of an employment employer arrangement that you can save money to, that gets you tax preferred opportunities. But none of that is any good if you don’t take the first step, if you don’t take action to actually contribute to your company retirement plan.

And when I was preparing for the show, and I was talking to our client service manager, Denise, in our office she was telling me that in a prior employer where she worked, which was a fairly large employer in Hampton Roads here over 200 employees, she said it was very common – oh, first off, they had established their 401 K plan so that all employees were automatically enrolled in the 401k plan. And they automatically contributed about 3% of the employee’s pay to the 401 K plan automatically, that was the default option. You’re going in the plan, and we’re contributing 3% of your pay on your behalf. If you did not want to contribute, then you had to take some affirmative action to opt out and say – sign a form, check a box, go to a website. I don’t know, say no, no, thanks, appreciate it, I don’t want to do that. She said that overwhelmingly, most of the people that she knew in her orbit, this was not scientific by any means, but it was specially prevalent among the younger crowd, opted out of the automatic enrollment in the company retirement plan. A company retirement plan that I will note also matched the 3% contribution of the employee. So free money from your employer, that the employees willfully gave up.

So we can’t help people who can’t help themselves. And it gets really frustrating when you hear the stories or read the surveys about a significant segment of the population that doesn’t have anything or might save for retirement. And they’ve had ample opportunities to do that. Whether they took their own initiative, or nowadays, you’re finding more and more companies who are sort of nudging their employees to make sure that they’re taking care of their financial future. And a lot of times people are opting out of that.

And, you know, that’s a behavioral issue. That is not a technical issue. That is not an “I don’t have enough money issue.” And let me preface this. I’m not talking about low income people. I understand people who have low income, it’s very difficult to have anything to save after paying the rent and the groceries and the car and the gas and I get that. I know that. I’m well aware of that. But I’m talking about the masses, the middle class, and above. Those are the people who have a medium income wage for Hampton Roads. Those are people who do have the means if they want it to begin building and saving for retirement, but so often many people choose not to. And part of that is our consumerist American society. God bless it. It helps make the world go round. It greases the skids. But it also is not the best for your own personal financial health. You’ve got to be able to take care of yourself first. Before you buy the big house, the expensive furniture, the fancy clothes, the expensive car go out to the high end restaurants. That comes second if you want to have a solid financial foundation and set yourself up for a good healthy retirement.

Pension Scarcity

Here tonight is sort of the sad state of affairs of retirement savings in the United States. We went through some of the statistics of a recent survey that said only about a third roughly, of the US population has anything saved for retirement. Those that do have something saved, most people have less than $100,000 saved for retirement. And for a middle class lifestyle, that is not enough to maintain that support, even with Social Security. Now, I will concede there are a few among us left who have pensions, typically, government workers, federal employees, state employees, municipal employees, teachers, some in the medical profession, still have access to pensions, large employers like utilities, and railroads. Some of those still have pensions. So that means you don’t have to save as much for retirement if you have access to a pension. But those are becoming more and more scarce, more and more rare.

You Have To Plan For Your Retirement

So for most of us, retirement is our own responsibility. And when it becomes our own responsibility, and there’s no one nagging you or forcing you, and even though companies are getting better about encouraging you to contribute to your company retirement plan, they’re automatically enrolling you in the plan. They’re automatically deducting the money. You have to take action to opt out of that. They’re willing to match the contributions that you put into the retirement plan, which is free money from them up to a certain amount. All those kinds of incentives are there. You still have to take action to do it yourself. You have to want it. Like we say at the top of every show, if you have a job, you have income, you have the opportunity for financial security. And then one day if you want financial independence, which means you rely on no other person, no company, no entity for a paycheck, you can maintain a comfortable lifestyle based on your own assets that you have accumulated over your lifetime.

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Statistics On Retirement Planning – Room For Improvement

So I want to just wrap up this survey with a few more statistics that I find very telling. According to the Bureau of Labor Statistics, 69% of private industry workers have access to an employer based retirement plan, but only 52% participate in their company retirement plan. And of those who have access, 39% contribute nothing to the tax advantaged retirement accounts. 13% contribute only 1% to 3% of their income, and roughly 13% contribute what is deemed to be a little bit more healthy – 4% to 6%. So even those that have access to the plan, many of the people don’t take advantage of it. Or those that do contribute very little and not in a meaningful way. So, I think the message is clear that a lot of us could do a lot better for ourselves by taking the initiative to start saving for retirement.

What’s Most Important To Successful Retirement Planning? Just Get Started

And this is one last anecdote. I was interviewed by a local TV station for a financial planning segment a couple years ago about how to get people to take better advantage of company retirement plans and prepare for retirement. And he said, “So what’s the most important thing? What does everyone need to do?”. And I said, “Well, the most important thing is they need to start saving, they need to, like go to the human resources and fill out the form and say I want to contribute.” “He’s like, no, no, no, but I mean, what’s the most important thing? I mean, like where did they have to put their money and what type of investments?”. I said, “that’s not the most important thing. The most important thing is they have to start. They have to actually contribute to the plan”. And he kept hounding me coming back, “it’s going to be harder than that, there’s got to be more to know, if you don’t start saving, you have no chance, you have to at least start contributing something, you have to open the IRA, you have to set up a money, an ACH transfer automatic from your bank account into a mutual fund account or a brokerage account, you have to do some administration. In order for it to happen. No one is going to do it for you.”

Case Study Illustrating Anyone Can Find Financial Security In Retirement

So, I want to tell a little bit of story here on it. Obviously, I feel kind of passionate about this. I’m pretty passionate about my career to begin with. And I don’t think that financial planning is just for wealthy people. And I kind of resent the fact when it gets implied that Financial Planning and Investment Management is for people who already have a lot of money. No, that’s not the case. I mean, one of the reasons why we are here every second for Tuesday is to free help everyone we can in the Hampton Roads listening area for free to try to better themselves financially. So I’m very passionate about this. And I believe that, like I said earlier, almost anyone if you have a job, you have income, you have a chance.

So here’s a little story to show you just how achievable this is. We have a longtime client of the firm that we were first introduced to back in 1990. In fact, so my predecessor of Wealthway Financial Advisors, Dan Bunting, who many listeners still recognize that name when we were called bunting Capital Management. Dan, by the way, is doing very well down in Naples, Florida. And a year or two ago, when he turned 80, he gifted himself a small boat and a motorcycle. We had pictures in the office. So anyway, Dan was with Fritz Freeze back then, Freeze & Associates. They were one of the first in the area, Dan and Fritz, to do this type of call in radio show. Somebody who was introduced to Dan in around 1990 – a woman, she was 30 years old at that time. She was divorced, had no children. She had no meaningful savings, no retirement plan, contributions at that point. She had $10,000 of credit card debt, which was a lot of credit card debt in 1990. Dan, out of the goodness of his heart, gave her some free advice, some free time, gave her some kind of tips and pointers and some homework and said, “if you’re interested, come back and see me another year”. So she went away, she did her homework. She did some things, she cleaned up her financial house a little bit. Came back, Dan gave her some more tips more help free pro bono work, which we still do today, by the way, as much as possible, give everyone that we can an hour of our time. And little by little, she improved her financial situation till eventually about 1995 Dan was able to take her on as a full-fledged client. Now this woman was a sixth grade math teacher at the time in 1990, and then she had a couple other teaching jobs through the years. And then eventually, because she was hardworking and diligent, she became an assistant principal in the school system, and then eventually a principal at various schools, throughout the school system in our area and eventually on to the centralized administrative staff overseeing the school CS system.

So her entire life has been in local public education, not a career path that we traditionally think of as making a lot of money. So through the years, Dan and then transferred to me, we helped her pay off debt, build an emergency fund, save money for a house down payment, start contributing to her 403 B plan, which is the company retirement plans for most schoolteachers. And then also a 457 plan, which is an add on or enhanced Retirement Savings Plan additional, I should say, retirement saving plan that some school systems their employees are allowed to contribute to. And so through the years, we worked with her to slowly and gradually get her financial house in order. Advisor’s through the years on all matters. Wherever money touches her life, just like we do today, wherever might touch her life, we are there to render advice, give her direction and help get her set up for success.

That woman today she will turn 64 this year. In addition to a very healthy pension that she will receive from the Virginia Retirement System, she has over $3 million of net worth. Now, some of that’s in real estate, she owns her house free and clear. But there’s equity in the house that counts toward your net worth not quite liquid, but it counts. And she has part of that, a big chunk of that $3 million dollars, is money saved in retirement plans, IRAs, Roth IRAs and regular brokerage account. A few shows ago I did a breakdown on what it means or takes to be wealthy in America. And if you have about $2 million in net worth, in the United States, you’re in the top 10% wealthiest households in the country. If you have $3 million of net worth, you are just about in the 5% wealthiest households in the country. This former sixth grade teacher has $3 million of net worth on a teacher’s and administrator’s salary her entire career by following a plan, being disciplined, living below her means, sacrificing but not to the extreme. She lives a very comfortable life. I will say she did not remarry. And she’s never had children. Children are fairly expensive.

Wealthway Financial Advisor’s Passion To Help People Find Financial Security

But that’s what’s possible. It’s possible to rise from a sixth grade teacher and to become in the 5% wealthiest households in the country. Now she turned 64 this year, she may retire this year, she may not. You may have retired a year to her passionate her work is her passion. Educating children is her passion. She doesn’t have to retire. She doesn’t necessarily want to retire. But she certainly can retire and live an even more vibrant, healthy retirement than the rest of her life. But most of her time and talents and efforts, she believes, are best used right where she is – helping kids develop as best they can in the school system. So I wanted to pass along that story. That is just a snapshot of a person who through motivation, dedication, behavioral modification to take the steps, to do the things that are necessary to set themselves up for retirement became one of the wealthiest people top 5% in the country. 

What I’ve said earlier in the show is true. We will meet with almost anyone for an hour or if we can’t meet with you in the office, we will have a phone call phone consultation with you. We are passionate about helping as many people as we can get on solid financial footings. And so we probably do, I don’t know 12 or 15. Just kind of pro bono help you out type of calls or meetings throughout the course of the year. We do ask if you want. Our best advice and best efforts is that you fill out our questionnaire prior to the meeting or the phone calls so that we can get a high level overview of your financial situation. And we know how to tailor our comments to help you the best but that’s always available for anyone free of charge. And no obligation, it doesn’t have to go anywhere past that.

Concerning State Of Retirement Savings In The US Wrap-Up

Want to wrap things up by putting an exclamation point on our discussion tonight about retirement savings, the state of retirement savings in America, and what you can do to help improve your chances of having a solid financial retirement. So just going to go back and hit some of the basics. What do you need to do to get started and get on the path?

Number one, you’ve got to save first and spend second. If anyone thinks that they’re going to save what they have leftover at the end of the month, into their IRA or into their company retirement plan or into a bank or brokerage account, you’re not. It’s too inconsistent. There are too many reasons to spend something more at the end of the month. You have to commit to a certain dollar amount of savings first, and then build your spending plan around it. So whether that’s $100 a paycheck goes into your 401 K plan, then start there. Start with something and then slowly build. Save first, spend second, if you want to have a high degree of chance of success of building a solid financial foundation.

Secondly, no bad debt. No credit, no revolving credit card debt, one of the most expensive forms No payday loans, no personal loans from the bank. Then you’ve got to build your emergency fund that helps keep you out of the threat of bad debt when you have an emergency fund to draw on from the bank when life unexpected emergencies arise.

Then make sure you contribute to your company sponsored retirement plans. They’re there for you. Your employer is matching you. That’s free money. If you don’t have one, contribute to an IRA or Roth IRA. And then don’t forget about a health savings account. If you have an opportunity for that. They are triple tax advantaged. We love those. And finally, live below your means. Save the difference. You’ll be happier, healthier, and wiser.

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We are an independent registered investment advisor firm, which means we’re legally held to a fiduciary standard to put our client’s interests ahead of our own in any business dealing. And that’s the way it should be when you work with a financial advisor. As the premier financial planning firm in Hampton Roads, our team of Certified Financial Planners® integrate expert investment management with customized ongoing financial planning advice to help our clients analyze big financial questions and enhance their quality of life.

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