Retirement Saving – How Being Average Puts You Behind

American workers should not feel too comfortable just because they are doing a little more than their peers to save for retirement. See why this peer group standard is way too low.
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It’s not being mean, but there is some comfort in finding out that the guy next to you is worse off than you are. When it comes to retirement saving though, don’t be too comforted by outperforming your peers.

The standard of retirement saving set by the average American worker is not nearly adequate. You could be above average in saving for retirement and still fall way short of what it takes to fund a comfortable retirement.

The following looks at the retirement saving standards being set by your peers in the workplace – and why you need to do much, much better than average.

Startling retirement saving stats

There is a myth that the hardships of the Great Recession years back made Americans more cautious and responsible about their money. However, the most recent Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) suggests this is not true when it comes to retirement saving.

Back in 2005, 69 percent of all workers surveyed had started saving for retirement. A little over a decade later, that figure stands at just 63 percent of participants who said they or their spouse were currently saving. Keep in mind that this is an example of a very low peer group standard. It simply asks whether or not people have started putting anything aside for retirement. The truth is, unless you are in your early 20s, you should be well beyond dollar one of retirement saving.

Why retirement saving is more crucial today

If anything, retirement saving is more important now than it was 10 years ago as interest rates decline. Back then, 6-month certificate of deposit rates averaged close to 4 percent. Now, they average 0.13 percent, according to the FDIC. With bank rates so low, it takes much more savings to produce the same amount of income. Thus people today need to save more for retirement than they would have expected 10 years ago, not less.

Low retirement expectations despite higher life expectancy

One reason some people fail to save adequately for retirement is that they set their sights way too low. The EBRI found that 21 percent of workers who performed a retirement savings calculation expect to fund a comfortable retirement on less than $250,000.

Consider that if you retire at age 65, you can expect to live close to 20 more years on average, and could easily live 30 years. How far do you expect $250,000 to stretch over 20 or 30 years – especially when you consider the impact that inflation will have between now and then?

Getting started with saving for retirement

People’s retirement expectations are so far off target because most have not even tried to figure out how much money they will need in retirement. The EBRI found that only 48 percent had taken this most basic of retirement planning steps.

Naturally, the percentage of people who have calculated a retirement savings target is lowest among younger workers, but older workers are also prone to savings pitfalls like planning to figure out their retirement needs when they get there. Even among those aged 55 and over, 33 percent of workers said they had total savings and investments of less than $25,000.

If you fail to save enough for retirement, you clearly won’t be alone in your misery. Even so, the comfort of having plenty of company won’t help to pay your bills, so regardless of what those around you are doing, you should step up your retirement saving now.

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Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).