Almost 40% of Americans have stopped saving for retirement, and even those putting money away for their golden years have saved far less than experts recommend.
Those are a few conclusions from a new study on retirement savings from the real estate website Anytime Estimate, which found that the pandemic seriously disrupted the retirement plans of millions of American workers. Many of them have seen their retirement timelines set back by years or even decades. As the economy heads toward a possible recession, it could take too many years to make up lost ground.
Over a Third of Working Americans Aren’t Saving for Retirement
Before the pandemic, nearly all working Americans were saving for retirement, with 93% of them putting money away. However, after the economic disruptions caused by COVID-19, only 63% are saving for retirement today.
Nearly 2 in 5 Americans (37%) aren’t saving at all right now. Of those non-savers, 39% reported having absolutely nothing in their retirement accounts.
Elsewhere, there is some good news about saving patterns. Of the Americans who do save, 68% are saving more than the expert recommendation of 15% of their annual income for retirement, compared to only 61% before the pandemic. The finding suggests that while almost everyone was saving for retirement pre-pandemic, many post-pandemic Americans are either saving more than ever or not at all.
Gen Z makes up the largest share of Americans (44%) not saving for retirement. The second-largest share belongs to baby boomers, who are quickly approaching retirement age. While some boomers may have already achieved their savings targets, the reality is much starker for many.
Almost a Quarter of Baby Boomers Didn’t Start Saving Until 50
Experts say the power of retirement savings comes from compound interest — so the earlier a person starts saving, the more time their money has to grow.
Many Americans have heeded this advice. More than half of Americans (52%) who are saving for retirement started doing so in their 20s. Many baby boomers, however, didn’t start saving until late in life, with 23% having waited until age 50 or later.
As a result, many baby boomers are facing a retirement crisis.
Financial experts suggest workers should have eight times their annual income saved by age 60. That means baby boomers making the median income should already have just over $286,000 saved. Unfortunately, the reality is that most boomers have far less put away. The amount actually saved by members of the baby boomer generation is just $112,000 — 39% of the recommended amount.
Many recognize that this shortfall could soon take a toll on their standard of living.
Baby Boomers Feel Pessimistic About Retirement
Few Americans feel good about their post-retirement financial outlook, with 79% worried their standard of living will decline once they stop working.
Boomers are especially anxious. Around 86% are concerned about their post-retirement quality of life, with 47% saying they’re “very” concerned. Moreover, boomers are 15% more likely than millennials and 38% more likely than Gen Z to say they’re “very” worried about their standard of living in retirement. That probably reflects the imminence of retirement as much as their lack of financial preparation.
But Americans of all generations have had their retirement plans disrupted by the pandemic. Around 40% of Americans have delayed their retirement plans to recover the financial ground they lost during the nationwide slowdown.
The Simple Reason Many Americans Don’t Save for Retirement
Among Americans not saving for retirement, the most common reason they gave was that they don’t make enough income (cited by 37% of respondents).
The second-most common reason was that they were unemployed (26%). Further down the list, nearly one-fifth of respondents (18%) said they had too much debt to save for retirement, while 15% said they didn’t know how to save for retirement. Taken together, these findings suggest the lack of savings is a matter of ability rather than willingness.
Given those responses, it’s not surprising that half of U.S. workers blame their employers for their situation, saying their companies don’t do enough to help them save for retirement. In fact, 31% of recent retirees said their former employer didn’t offer a 401(k) or pension plan.
Younger workers, however, report having more favorable benefits. For example, millennials were 31% more likely than baby boomers to say they make enough money to save for retirement and 46% more likely to say their employers adequately contribute to their retirement plans.
10% Of Americans Don’t Think They’ll Ever Be Able To Retire
Asked when they expect to be able to retire, respondents had a wide spectrum of answers. A quarter guessed they’d be able to retire before age 60, while 38% said they’d likely retire in their 60s, near the average retirement age.
But 10% of respondents said they don’t think they’ll ever be able to retire and will essentially have to work until the end of their life.
A majority of Americans are similarly pessimistic about their retirement savings, with 56% saying they believe they’ll outlive their nest egg. Although Social Security was supposed to be a safety net for retirees, many Americans aren’t confident the program will be around by the time they retire. Overall, 55% of workers think Social Security will run out of money before they hang up their boots. Millennials are particularly pessimistic — 2 in 3 (64%) think Social Security will go bust before they stop working, compared to 32% of boomers.
Younger Generations Have Been Wiser About Saving
Younger Americans, who have come of age in an era of frequent economic shocks, appear to be wiser about money matters than baby boomers. Not only are they breaking into a hot housing market by buying fixer-uppers and exploring unconventional ways to buy a house, but many have started saving for retirement early.
Over a quarter of millennials who are currently saving for retirement (29%) began doing so in the latter half of their 20s, more than double the share of boomers (14%) who started saving at that age. Even more impressive, almost a fifth of millennials (18%) started saving in their early 20s, double the percentage of boomers (9%) who did so.
This preparation means the average millennial is better positioned for a healthy retirement. Experts recommend workers have three times their annual income saved by age 40, which for the average U.S. worker comes out to about $107,000. The average millennial has $70,000 saved, putting them right on course.
Additionally, one finding showed how creative Americans are when it comes to retirement savings. A quarter of Americans (including 30% of millennials) plan to rely on cryptocurrency as one source of retirement income — a strategy that shows how optimistic (or desperate) Americans are to provide for their golden years.