Retirement Readiness

WHAT’S THE STATE of America’s retirement readiness? Here’s a quick look at some worrisome statistics—as well as some key notions that should concern both those saving for retirement and those who have already quit the workforce:

• You can get a glimpse of America’s retirement readiness from the Federal Reserve’s 2022 Survey of Consumer Finances. Among households headed by someone age 65 to 74, 76.1% owned their home, down from 85.8% nine years earlier. Moreover, 64.8% were carrying some form of debt, including 32.2% who had debt secured by a home. Just 51% of this group had an IRA or similar retirement account and the median balance was $200,000. That’s enough to generate some $670 a month in retirement income, assuming a 4% withdrawal rate.
• Among households headed by someone age 55 and older, 29% had neither savings in a retirement account, like an IRA or 401(k) plan, nor were they covered by a defined benefit pension plan, according to a Government Accountability Office study.
• Just 15% of private sector workers were covered by a defined benefit pension plan as of 2022, compared to 86% for state and local government workers, according to the Bureau of Labor Statistics. But 66% of private industry workers had access to a 401(k) or similar plan, compared with 39% for government workers.
• The National Institute on Retirement Security found that a quarter of households headed by someone age 55 to 64 had a net worth—the value of all assets, including their home, minus all debt—that was less than their annual income. By contrast, experts often suggest amassing a sum equal to 8 to 12 times income by retirement, and that sum doesn’t include home equity.
• Even if most folks aren’t in good shape for retirement, presumably some are. How many? Phoenix Marketing International calculates how many U.S. households have $1 million or more in investable assets. Based on a 4% portfolio withdrawal rate, $1 million would give you $40,000 in first-year retirement income, on top of whatever you might receive from Social Security and any pension plans. That should be enough for a comfortable, though hardly lavish, retirement. Phoenix calculates that 8.4 million U.S. households had $1 million or more in investable assets as of 2019. New Jersey, Maryland, Connecticut, Massachusetts and Hawaii had the highest concentration of millionaire households, at more than 9%.
• According to the Employee Benefit Research Institute’s 2024 Retirement Confidence Survey, workers on average expect to retire at age 65. But it turns out the actual retirement age is typically 62. The study also found that 75% expect to work for pay once they retire, but only 30% of retirees report doing so.
• Those quitting the workforce in 2024 will spend almost 20 years in retirement, on average, up from less than 14 years in 1970, says Boston College’s Center for Retirement Research.
• Delaware, West Virginia and Georgia are the best states to retire, says Bankrate. The ranking is based on five criteria, with the biggest weight given to affordability. WalletHub says the best states to retire are Florida, Colorado and Virginia, while the worst states are Kentucky, New Jersey and Mississippi. The WalletHub ranking considers affordability, health care and overall quality of life. Meanwhile, Seniorly says the most affordable states for retirees are Wyoming, Utah and Montana, and Bank Locations gives the retirement thumbs up to Texas, Michigan and Florida, and the thumbs down to Delaware, West Virginia and Rhode Island. Finally, RetirementLiving gives top marks to New Hampshire, Maine and Iowa, and the lowest scores to California, New York and Maryland.
• Social Security retirement benefits average almost $23,000 a year. An estimated 97% of seniors either receive Social Security or will receive it. Social Security benefits provide half or more of the income for 51.8% of folks age 65 and older. For 24.7% of seniors, Social Security accounts for 90% or more of their income.
• Inflation, which can be a major headache for retirees, ran at 3.4% in 2023, 6.4% in 2022, 7.2% in 2021 and 1.3% in 2020.

Next: Three-Legged Stool

Previous: Retirement

Articles: The Other Half, Retiring: 10 Question and Ten Commandments