According to data provided by the US Census Bureau, the average retirement age in the United States is 65 for men and 63 for women. The average retirement length is approximately 20 years. During the past several decades, the number of years people spend in retirement has steadily increased. Unfortunately, most retirees are not financially prepared to enjoy their “golden years.”
Generally speaking, retirees have three sources of income to rely upon during their years of retirement. The list includes personal savings, pensions, and Social Security. Based on research conducted by the Federal Reserve Bank of Saint Louis (FRED) in 2019, each source of income is inadequate to meet the financial needs of the average retiree. For example, in terms of personal savings, the median 401(k) account balance for investors over the age of 65 is only $58,035. This number is taken from the FRED data provided by Vanguard. Pension balances are slightly higher. Each pension plan owner can withdraw $9,376 per year. However, according to FRED data, only 27% of retirees have access to a pension plan. What about Social Security? In 2019, the average monthly Social Security check was $1,471, or $17,652 per year.
If we combine all three sources of income, the annual withdrawal amount would be $30,028. It’s certainly possible to live on $30K per year, particularly if you have no monthly mortgage payment and you live a frugal lifestyle with low monthly expenses. However, for those people who are expecting a robust extravagant retirement, the majority will probably be disappointed.
At the end of its 2019 research report, the Federal Reserve Bank of Saint Louis concluded that the majority of American retirees will struggle financially at some point during their retirement years. The recent COVID-19 outbreak has only added to the problem.