As the Federal Reserve raises interest rates, savings account rates are increasing. People can now earn at least 4.97 percent on their savings. According to Forbes, the national savings interest rate has increased sixfold over the past year.
Savings Goals Still Unmet
Despite current interest rates being at a 15-year high, however, people still fail to meet their saving goals. A new ranking by DollarGeek has identified the states in the United States that are the most behind in meeting their recommended retirement savings objectives.
The average state is 44 percent behind its savings goal, using the current cost of living as a benchmark. In addition, the average sum required to retire in the US is $760,476, after Social Security income, while the typical American has just $427,918 in savings.
The recommended retirement sum for each state differs based on the annual cost of living. Hawaii currently has the highest recommended retirement sum of $1.8 million. At the same time, Mississippi residents can expect to retire after saving a comparatively modest $505,346.
10 States Furthest Away From Recommended Retirement Savings
Hawaii has the highest percentage savings shortfall at 80 percent, with only $366,776 in actual savings compared to the recommended retirement savings of $1,813,768. New York follows closely with a 70 percent savings shortfall, and California comes in third with a 63 percent savings shortfall.
The District of Columbia, Massachusetts, Oregon, Rhode Island, Maine, Utah, and North Dakota also have significant savings shortfalls ranging from 53 percent to 59% percent.
These numbers suggest that many residents in these states may struggle to achieve financial security during retirement. Several factors may contribute to the savings shortfall, including the high cost of living, low wages, lack of access to retirement plans, and inadequate retirement planning.
Cost of Living Impacts Retirement Readiness
The exorbitant cost of living in Hawaii, which is 88 percent higher than the national average, may make it difficult for residents to save for retirement.
In contrast, states with reduced living costs, such as Iowa, which is 9 percent below the national average, may have an easier time saving for retirement. Unsurprisingly, Iowa records a 20 percent savings shortfall, ranking number two right after Kansas (with a 17 percent savings shortfall) for states closest to recommended retirement savings. Georgia, Michigan, New Mexico, South Carolina, Alabama, Ohio, Texas, and Kentucky also make this list.
This Is How Much You Need To Be Saving for Retirement
Derek Sall, Founder and Lead at Life And My Finances, says that while the average retirement savings may be at $429k, the median amount is much lower–somewhere around $100k for those between the ages of 45-54 years old, which means the numbers (unfortunately) are bleaker.
Sall attributes these gross savings deficits to people's inability to begin earning income as early as they ought to. According to the financial expert, we are commencing our working lives much later and significantly further behind our parents' and grandparents' generations.
He explains further: “It used to be that you graduated high school with no debt at 18 years old. You can then begin to save and invest early in life and have those investments grow. Today, we're graduating and starting work at 23, 24, 25 years old, but with $50k+ in student loan debt.”
Average Recommended Savings Are Attainable
Sall states that achieving the $760k retirement savings target is undoubtedly possible. But it is most achievable when savings begin early in life. He provides a guideline on the amount needed to be saved each month, based on the starting age and assuming an 8 percent interest rate, to reach the $760k goal by age 65.
- Start at age 25: $220/month
- Start at age 35: $500/month
- Start at age 45: $1,300/month
- Start at age 55: $4,200/month
Pay off Student Debt… If You Can
Sall suggests that people keep their student debt to a minimum and pay it off as early as possible. He also stresses the importance of starting to invest and save money early. Those who begin investing later in life must do it aggressively, as doing otherwise may make catching up impossible.
A spokesperson for DollarGeek notes that prioritizing saving money at present is advantageous as the returns savers stand to get on their money are the highest they have been in 15 years, with top-yielding online account rates returning just over 5 percent in interest.
“Although there's no official guidance on how much you should be saving each year,” they say, “these figures serve as a reminder that there's really no minimum age to start putting money away and that every little helps towards achieving long-term financial security, especially in the current climate.”
Determining Your Retirement Savings
Sall recommends people save up at least $1.5 million in their retirement accounts, especially if they're still 20-30 years away from retirement. “Life is only going to get more expensive in the future, and that $1.5M will feel more like the $750k of today,” he says.
Still, this number can vary depending on circumstances, goals, lifestyle, and expenses.
Rule of 25
According to the DollarGeek spokesperson, the ‘rule of 25' is an excellent method for determining how much money you need to retire, as it allows you to calculate the amount you need to live comfortably based on your monthly expenditures. This monthly quantity is multiplied by 12 to determine the annual withdrawal amount.
The annual withdrawal amount should then be multiplied by 25 to determine your retirement savings goal, from which you can derive your optimal savings schedule.
Amaka Chukwuma is a finance and lifestyle writer with a real knack for the craft. She's been at it for over four years, making her mark on places like FinanceBuzz and The Buttonwood Tree, not to mention some cool collaborations with various brands. Her. Her work with Wealth of Geeks has been widely appreciated, with syndication across multiple platforms and publications. Amaka's got a BA in Linguistics. When she's taking a break from her writing adventures, you'll probably find her digging into some delicious pies or exploring the food scene. Want to see what she's up to or get a taste of her work? Hit her up on LinkedIn and Twitter.