Most savers in the US are falling short of putting away the amount of money they need for a comfortable retirement.
Financial advisers reckon someone needs around 75% of their pre-retirement income when they give up work, but savers in only two states are achieving their target.
Only retirees living in Hawaii and Nevada make 70% of their working income in retirement, according to data from the Census Bureau.
These figures can return odd results – for instance, Hawaii is a retirement destination for many well-off seniors who are likely to have higher post-job incomes than most, while Nevada has a high number of unionised jobs likely to come with pensions.
The rest are lagging way behind, bringing in somewhere between 50% and 60% of the income they had before quitting work.
Social security
The data shows retirees in 48 states fail to hit their financial target when giving up work, and in 31 states, the retirement income figure is less than 60% of what was earned while working.
In fact, the Census Bureau asked millions of retired Americans how much they earn and where the money comes from in the American Community Survey.
The research revealed that social security is the major income source for most retired Americans – not the expected response of a mix of pensions and retirement savings.
Social security paid retired workers an average $1,230 a month a year ago, which is far less than 70% of average pre-retirement earnings.
“Most of us thought only low-income seniors were topping up their income with social security, but middle-income seniors pick up a significant share of their income from social security as well,” said
Gary Koenig, economics analyst for AARP’s Public Policy Institute.
401(k) average funds
How much retirement income is needed depends on the senior, their lifestyle and debts. However, the figures show retirees have an average yearly income of $35,107 – which is the equivalent of 57% of the average pre-retirement income.
The number of seniors picking up a cheque from a pension is reducing as well.
Official figures disclose just 43% of Americans over 60 years old receive a pay out from a defined benefit (DB) pension – and when public employees are removed from the count, only 15% of private sector workers have a DB pension payment.
The decline is explained by employers shifting workers from DB schemes to 401(k) pensions.
That sounds OK until the numbers are crunched. The average 401(k) has a fund of $120,400 on retirement, but that only provides a monthly income of $400 over an expected 30 years of retirement, says Fidelity Investments.
Penison mis selling is also a massive problem leading to shortfalls in older people’s retirement money. Many people are not told the risks of taking certain steps in saving for their retirement, leading to them losing the funds they sorely need.