“How am I doing?”
That’s a big question that most people have when it comes to their money. One way we tend to look for answers is by comparing what we have to what our neighbours, friends, and family, have. Even though we know deep down that “the grass is always greener on the other side,” it can be hard to look away when our cars, houses, phones, computers, and TVs are practically forcing us to make these comparisons.
We understand the worry that you might not be keeping pace with your peers. However, from a financial planning perspective, these somewhat material comparisons are not that helpful other than in terms of possibly confirming the lifestyle you’d like to have or maintain.
What is arguably a more important comparison is what your neighbours, friends, and family, might have behind them to fund those material items, not only today but also into the future.
Unfortunately, if you’re wondering about where your savings, investments, pension, etc. “should be,” it’s actually very difficult to compare this with our peers. Put simply people will happily tell you about their house or car but are rarely happy to discuss their finances.
However, we do have some American data from Nerdwallet which will be of some help in comparing. Here’s how average American retirement savings (converted from dollars into sterling as at today’s rates) break down by age:
The numbers behind the numbers
Is an “average” retirement good enough?
Average household retirement savings: £24,900
Median household retirement savings: £9,400
Ages 35 to 44
Average household retirement savings: £76,700
Median household retirement savings: £28,400
Ages 45 to 54
Average household retirement savings: £165,400
Median household retirement savings: £63,300
Ages 55 to 64
Average household retirement savings: £286,600
Median household retirement savings: £92,000
Ages 65 to 74
Average household retirement savings: £274,700
Median household retirement savings: £96,500
As you might have guessed, retirement savings tend to ramp up as we age. In part, this is because the older we get, the more real retirement becomes, and more prepared we want to be.
But as fiscally responsible people age, their debt level tends to drop as well. No more kids to support. No more student loan payments. Mortgages get paid off. Credit cards get used less (unless you’re focused on accumulating points) and paid down. There’s only so much you can keep in a low-interest savings account before you want to put more of your money to work.
If these figures seem a bit low to you, you’re not wrong. Most financial experts believe that, generally, Americans (and us Brits) are not saving nearly enough for retirement.
Yes, having a couple hundred thousand in savings and investment accounts may sound like a lot of money. But people are also living longer and more active lives than ever before. That means your retirement assets are going to have to last longer than your parents’ and grandparents’ did.
And as many Final Salary pensions have closed, the responsibility for preparing for retirement has shifted more and more to you as an individual. That’s going to be a challenge for anyone who’s significantly below these savings levels. And it’s going to be a BIG problem for the 43% of American households headed by someone 35-44 who don’t have any retirement savings at all.
Let’s say you’re the average 65-year-old with just over $300,000 in the bank. How long is that £230,000 going to last? Is that nest egg going to provide the retirement you’ve been dreaming about and working for most of your life?
There’s no one-size-fits-all answer to those questions. We all have different passions, goals, and lifestyle expectations. Some retirees might live quite happily at or even a little below the average level.
But what happens if your roof needs a major repair? Will an emergency stretch your “average” retirement too thin?
What happens if, five years into a twenty-year retirement, you start to feel bored and restless? What if you decide you need to see more of the world? What if you can’t let go of that passion project you’ve always wanted to develop into your own business? Will your nest egg provide for changes that will make your retirement more fulfilling?
How your money measures up.
Successful retirement planning balances the things that we can anticipate with the things we can’t. That’s why, as we work together, we’ll never hold up a graph comparing where your money is to where your peers are. We’re not interested in outside standards of “measuring up.” We’re interested in how your money measures up to what YOU want out of life, and what you’ll need to stay comfortable on rainy days.
Contact us to review your own particular situation to make sure that you are on track to hit the standard that matters most: yours.