Here’s the retirement savings that put you with the richest 10% of Americans — it’s a much smaller number than you may think
Most people in the workforce have to think about what they’ll live on once they leave it for good. There are different ways to estimate what you’ll need in retirement and prepare accordingly, but if you’re wealthy you’re more likely to get it wrong.
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A study by the Center for Retirement Research at Boston College found that higher-income households are most likely to underestimate their risk of being unable to maintain their standard of living once they retire. In other words, they misjudge how much their assets can support them in their golden years.
So how much do America’s richest have saved for retirement?
The top 10% of American households by net worth had an average of $1.29 million in their retirement accounts in 2022, according to the Federal Reserve’s Survey of Consumer Finances. This is almost four times the average retirement savings for all American families that year.
Keep in mind that retirement accounts, which include individual retirement accounts, Keogh accounts, and certain employer-sponsored accounts, such as 401(k), 403(b), and thrift savings accounts, are only some of the assets held by this group. The top 10% richest American households had an average of $8.1 million in all assets put together, which may include real estate, cash value life insurance, savings bonds etc.
Shockingly, nearly 50% of American households held no retirement accounts in 2022.
Maximizing your savings
Even living lavishly isn’t your retirement goal, you’ll still want to maximize your income during your golden years and one way to do this is maximizing your savings.
Social Security was the most common source of retirement income in 2022, according to the Federal Reserve, but 79% of retirees also had one or more sources of private income. This included 56% with a pension, 42% with interest, dividends, or rental income, and 32% with labor income.
Your Social Security benefit can help you get by, but it likely won’t be enough to live on comfortably. A pension can also help, but not everyone has a pension, so it’s important to be proactive and take charge of your own retirement.
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You’ll want to supplement any guaranteed income, such as your Social Security benefit, pension (if you have one) and fixed annuities (if applicable) with investments such as stocks and mutual funds to help you keep pace with inflation.
Make use of tax-advantaged retirement accounts. Most financial experts recommend diversification and the appropriate asset allocation for your age as the keys to a successful retirement.
If your employer offers to match at least a portion of your contributions to a 401(k), it makes sense to try to contribute enough to get the greatest match you can. If you don’t have an employer-sponsored retirement plan, you can consider other options, such as a solo 401(k).
Other options include an individual retirement account (IRA) or Roth IRA. If you think your income will be higher in retirement, it may be better to pay taxes now (with a Roth IRA). If you expect your income will be lower in retirement, you may want to consider a traditional IRA (since you don’t pay taxes until you withdraw funds in retirement—and you can grow your money tax-free in the meantime).
It can help to talk to your financial advisor about the best path forward, depending on your personal circumstances.
While cutting back on expenses is one way to increase your cash on hand (and the amount you can save and invest), you can also look at ways to increase your overall income. That could mean taking on a side hustle, asking for extra hours or overtime, or looking for a higher-paying job.
Perhaps you won’t be able to reach the same retirement savings as the top 10%, but by living below your means and investing wisely, you should still be able to retire comfortably — and maybe even enjoy a few luxuries.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
