Americans Have Set Own Savings Thresholds for Retirement Preparedness

Many adults are struggling to save for retirement and feel they are not on track with their savings, according to a report from the Federal Reserve describing the responses to the sixth annual Survey of Household Economics and Decisionmaking (SHED).

Because retirement saving strategies differ by circumstances and age, survey respondents are asked to assess whether or not they feel that they are on track; however, the report notes that they define that for themselves. Thirty-six percent of non-retired adults think their retirement savings is on track, 44% say it is not on track, and the rest are not sure.

One-quarter of the non-retired indicate that they have no retirement savings or pension. Of the non-retired age 60 and older, 13% have no retirement savings or pension. Among those non-retirees who do have retirement savings, a defined contribution (DC) plan, such as a 401(k) or 403(b) plan, is the most common type. Fifty-four percent of non-retirees have money in this form. Only 22% of non-retirees report having a defined benefit (DB) pension plan.

Older adults are more likely to have retirement savings and to view their savings as on track than younger adults. Nevertheless, even among non-retirees in their 60s, 13% do not have any retirement savings, and less than half (45%) think their retirement savings are on track.

Self-assessments of retirement preparedness vary with the amount of current savings and with time remaining until retirement. Adults younger than 30 typically believe that their savings are on track if they have at least $10,000 set aside for retirement. Not surprisingly, the amount of retirement savings required for most to report being on track increases with age. Adults ages 45 to 59 who say their retirement savings are on track typically have at least $250,000 saved. For those between 30 and 44, the threshold is $100,000.

Just over two in 10 non-retirees younger than 45 have retirement savings that meet their age-specific “on track” thresholds. The fraction rises with age to 27% of adults ages 45 to 59. The threshold for most to view savings as on track rises more rapidly with age than the fraction reaching that level of retirement savings.

Overall, 5% of non-retirees have borrowed money from their retirement accounts in the prior year, 4% have permanently withdrawn funds, and 1% have done both. Those who have withdrawn early are less likely to view their retirement savings as on track than those who have not—27% versus 37%, respectively.

Managing investments and financial literacy

The level of comfort in managing retirement plan investments varies. Six in 10 non-retirees with DC plan accounts expressed low levels of comfort in making investment decisions.

Self-assessed comfort in financial decisionmaking may or may not correlate with actual knowledge about how to do so. To get some sense of individuals’ financial acumen, respondents were asked five questions commonly used as measures of financial literacy. The average number of correct answers was 2.8, and 22% of adults got all five correct. Using these measures, it appears that those expressing more comfort managing their retirement accounts also demonstrate more financial knowledge. Among those who have self-directed retirement accounts, those who express decisionmaking comfort answer more questions (3.7 out of  5) correctly, on average, than those who express little or no comfort(2.9 out of  5).

Economic well-being in retirement

More than one-quarter of adults consider themselves to be retired. The report’s discussion of current retirees includes everyone who considers themselves to be retired, even though some also report that they are still working in some capacity. Seventeen percent of retirees say they had done some work for pay or profit in the prior month.

Retirees are somewhat more likely to report that they are at least doing okay financially (78%) than non-retirees (74%). Retirees who are still working report even higher levels of well-being. Nearly half of retirees in 2018 retired before age 62, and one-fourth retired between the ages of 62 and 64. Overall, early retirees report similar levels of economic well-being as later retirees.

In deciding when to retire, a desire to do other things than work, or to spend time with family, are the most common factors. However, four in 10 retirees before age 62—and three in 10 between ages 62 and 64—say poor health contributed to their retirement. More than one-fifth of those who retired before age 65 say the lack of available work contributed to their decision

The study found economic well-being varies considerably by the reasons for retirement. Nine in 10 retirees who say doing something else was very important in their retirement decision are at least doing okay financially, versus more than half of those who retired due to poor health.