You didn't read the links then. Median 401k balance is no more than $71k across all age cohorts. Assuming a 4% perpetual withdrawal rate (Trinity study), that is ~$2840/year in income.
Per the GAO:
> Even for those who do have access, traditional defined benefit pensions have become much less common as defined contribution plans, such as 401(k)s, have become the primary type of retirement plan. This shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. As of 2016, about half of households with a worker age 55 and older had no retirement savings, and 29% had no retirement savings or a defined benefit plan. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security.
40% of Social Security recipients have no other income.
Regardless of whether and how much private equity is affecting growth in prices of stocks for public companies, the S&P in which people's 401ks are invested has grown a lot, and will probably continue to
Low balances in 401k's are therefore due to insufficient contributions and not insufficient growth in S&P prices
> The 401k generation will begin think about retiring in the next few years. Most will discover that their 401K, despite maximum contributions, will be insufficient to retire on.
The maximum individual contribution—not counting employer contributions—is $22,500. Or if you’re over 50, it’s $30,000. If You’re maxing out your 401k, you’ll pass $71k after working just a few years.
To retire with just $71k after working a typical career of 40 years, you’d have to save less than ~$600/year. In other words, saving $600/year—~4% of a minimum wage salary—is enough to surpass this median $71k number after a 40 year career and a conservative 5% avg return.
I suspect most of these people have other savings.
> I suspect most of these people have other savings.
Please show me the data, because all available public sources indicate this is not the case, and in my travels, the data confirms my conversations with these cohorts (because I am very curious). If they have other savings not showing up in the data, what and where is it? We cannot simply assume it exists. Hope is not a strategy.
Well, for starters, we can look at the median net worth of Americans, which in 2019 was between $250k and $310k for the age groups we’re talking about here. Is that enough? Still probably not, but it’s a heck of a lot more than just $71k.
If your net worth includes your primary residence, and you can't live off the equity, it is not retirement savings. It is dead capital, as you must live somewhere. Certainly, we can include it in your estate and net worth, but that's more pertinent to whomever is next of kin, not the person who needs cashflow for groceries, fuel, utilities, healthcare expenses, and so on. What the metrics represent is important, otherwise we are blinded to ground truth.
I must strongly emphasize that vehicle equity is not retirement savings if you must keep the car for mobility. Home equity is not retirement savings if you must have a place to live and there is nowhere to downsize to, unless we are expecting 55+ to sell their homes and live in a van down by the river, burning through their housing proceeds and hopefully dying before it is exhausted.
I think it’s still perfectly relevant. Retirees who own their homes have lower expenses than those that must pay rent. If your net worth is 100% equity in your wholly owned home, social security will go a much longer way than someone with $71k in a 401k who must still pay rent.
I don’t know what point you’re trying to make here. Is US retirement a mess? Yes. But I don’t think the magnitude of bleakness is quite as high as you’re describing.
While hardship exists, and I think we’d probably agree that there needs to be a much better safety net in place for people, I think it’s also true that many capable people neglect to save enough for the future. And, to be honest, I think often it’s because of rhetoric like yours. People are hopeless, and just give up trying. Reality is not that grim. Saving even $1M in a 401k over 40 years has been attainable for most people by following the boring “save 10%” strategy.
But a higher net worth due to having equity in a home is not the same as having fully paid off your home. There's just not enough information in such statistics to make such a determination one way or another.
You're welcome to assume that retirees have paid off their mortgages, but it's a wholly unsupported assumption, given just the information in this thread. If you want anyone else to give it credence, cite some sources for it.
Equity is equity. It's net worth that matters regardless of any mortgages. If a retiree has a mortgage payment then that's just one more housing expense to factor into retirement planning along with property taxes, maintenance, etc. For retirees with low interest mortgage it would be foolish to pay those off. And retirees who have substantial equity but need cash for living expenses can always take out a reverse mortgage.
In order to determine whether you can afford to retire, you need to be looking at recurring expenses, not illiquid assets. If you have an expected monthly income from your 401k of, say, $1200, but your mortgage payment is $800/month, it doesn't matter that you've got $150k already paid into it and only another 10 years left to go; you can't afford to retire now![0]
Yes, it's theoretically possible (depending on how much equity you actually have, and your credit score) to take out a home equity loan to provide you with money to live on in your retirement, but a) there's interest payments to think of, which put you right back at the top of this post looking at monthly expenses, and b) if this is a significant part of your net worth (which, for many of these people, it absolutely will be), this means that at best you're leaving your heirs with a bunch of debt and no house, and at worst the bank just won't let you do it in the first place. And while there is certainly a perfectly reasonable discussion to be had of whether it's better to use the money for yourself now, and not care about your family, making that selfish choice is far from universal.
[0] No actual numbers were harmed in the making of this post. All numbers are entirely made up.
That's completely backwards. I don't think you understand how reverse mortgages work. It's not the same as a home equity loan.
As for leaving an estate for heirs, that's a separate issue from retirement planning. There's no way to leave a bunch of debt to heirs. If you die with liabilities exceeding assets then any debt which remains after selling off assets is simply defaulted. The heirs will inherit nothing of significant value, but creditors can't force them to pay off the remaining debts either.
I know far too many people (albeit all younger than me) who readily admit to having zero savings--retirement or otherwise. These aren't destitute minimum wage workers. They're professionals with decent jobs, often whose employers have 401(k) programs. They just don't participate in them. They deliberately don't because they want to spend today and not lock up their money for an uncertain future. About half think they're going to die before retirement, and the other half have an overly rosy expectation of a future safety-net to help them. They are betting (unwisely IMO) that the USA will give in and not let an entire generation die on the street.
The term "retirement savings" is too narrowly defined here, since it only includes things like 401k, savings accounts, and pensions.
Many people have their retirement savings entirely in rental real estate (I know several like this). Many people have small retirement accounts but millions of dollars in ordinary taxable investment accounts due to the myriad restrictions that the government places on what you can put into retirement accounts. All of these are outside the definition of "retirement savings", despite being actual retirement savings, but none of them are rare.
> Many people have small retirement accounts but millions of dollars in ordinary taxable
Certainly not many people, at least not many in the context of retirement population. Any people with access to millions of dollars of assets in retirement are rare.
Don't worry, I'm sure they'll get together and vote to distribute everybody's 401(k) balances equally among all retirees so that they people who did save will also end up with nothing.
Per the GAO:
> Even for those who do have access, traditional defined benefit pensions have become much less common as defined contribution plans, such as 401(k)s, have become the primary type of retirement plan. This shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings. As of 2016, about half of households with a worker age 55 and older had no retirement savings, and 29% had no retirement savings or a defined benefit plan. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security.
40% of Social Security recipients have no other income.
https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
https://web.archive.org/web/20231028173718/https://www.nirso...