If you’re struggling to save a significant amount for retirement, you might think you are doing worse than most people. Surely the average American has many more thousands socked away, right?
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If it’s any consolation, that may not be the case. While retirement savings can vary widely by age, the truth is that the average American is often inadequately prepared for retirement.
The statistics shouldn’t discourage you, though. After all, there’s a good chance you aren’t doing as poorly as you thought relative to other Americans. Use this instead as motivation to get on track to a financially secure retirement. Let’s cover how to make that happen.
The Average American’s Savings
According to Vanguard’s How America Saves 2022 report, the average account balance for Vanguard participants was $141,542, while the median was $35,345. The report says that the average balance was up by 10% since 2020.
Breaking things down further, about one-third of Americans (36%) have less than $10,000 saved. 27% have between $10,000 and $50,000 saved, and 15% have between $50,000 and $100,000 saved. 9% of Americans have between $100,000 and $200,000 saved, and 4% have between $200,000 and $350,000 saved. Finally, 4% have between $350,000 and $500,000 saved, and about 4% have more than $500,000.
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Average Retirement Savings by Age
Looking at the overall averages only tells us one part of the picture, but breaking things down by age gives us a better idea of how Americans are doing.
According to PriceWaterhouseCoopers, Americans under 35 have a median of $12,300 in retirement savings. The median for those 35-44 is $37,000, and for those aged 45 to 55 the median is $82,600. Finally, for those aged 55 to 64, the median is $120,000.
Naturally, older Americans tend to have more money in their retirement accounts. GOBankingRates found that for those aged 65 and over, 12% have more than $750,000 saved. But for the entire group of those aged 35 to 64, just 13% have $750,000 or more.
How To Set Yourself Up for Retirement
Given the statistics, it’s clear that the average American isn’t quite prepared for retirement. If you are among that demographic, it’s time to get serious about your retirement plan. Here are some steps to get you started.
Prioritize Savings in Retirement Accounts
If your retirement savings aren’t where you’d like them to be, one of the first things to do is prioritize your retirement accounts. You might have a 401(k) or 403(b) through work and can also open an IRA. The first two have contribution limits of $22,500 in 2023, while IRAs have a limit of $6,000.
These accounts have certain advantages like tax breaks that make contributing to them worthwhile. Your employer might also offer matching contributions that make your money go even further.
How much you should contribute to your retirement accounts depends on many factors. However, Fidelity recommends a 15% savings rate for the general population. If you start saving at 30, that figure increases to 18% of your income. And if you start at 35, you should be socking away 23% of your income. This assumes a retirement age of 67.
Increase Income and Avoid Lifestyle Inflation
Setting aside a big percentage of your income is helpful, but it will be more beneficial with a higher income. Thus, you should look for ways to increase your income. That might be with new certifications or picking up a side job. The means aren’t as important as the ends here. If you can make more money, you can put more money away.
This assumes you are avoiding lifestyle inflation. If you increase your spending every time you get promoted, you might save the same amount despite the higher income. To avoid this situation, consider setting up an automatic transfer into a retirement account when you get promoted. This way, you won’t be tempted to spend the extra money.
Play ‘Catch Up’ if Necessary
Many Americans aren’t quite where they need to be with their retirement savings. If you’re in that group, you might have some catching up. Fortunately, the IRS allows extra retirement contributions if you are a little behind.
Specifically, it allows catch-up contributions for those aged 50 and over. You can contribute an additional $7,500 on 401(k), 403(b), SARSEP, and governmental 457(b) plans. For SIMPLE IRA plans, you can contribute up to $3,500 extra. And on traditional and Roth IRA plans, you can make up to $1,000 in catch-up contributions.
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This article originally appeared on GOBankingRates.com: How To Tell if You’re Doing Better With Retirement Savings Than the Average American
