10 years after Great Recession, retirement savings remain scant

The new work trend: "Unretirement"

Nearly a decade since the Great Recession, many workers and their employers haven't yet recovered. More than half (58 percent) of workers and almost half (49 percent) of employers recently surveyed by Transamerica Center for Retirement Studies (TCRS) responded that they're still working their way back from the Great Recession, which lasted from September 2007 to June 2009. 

But there's some good news, too, in the TCRS September 2018 report, which compared conditions in 2007 to those in 2017.

  • Participation in 401(k) plans at work remained relatively constant from 2007 to 2017, at 80 percent of workers. Contributions have also held up: The 2007 median contribution of 8 percent of pay increased to 9 percent in 2017. 
  • More than half (58 percent) of surveyed 401(k) participants used some form of professionally managed investments, either a target-date fund, strategic allocation fund or a managed account.
  • The amount of money in retirement savings accounts has increased significantly, from an estimated median of $47,000 in 2007 to $70,000 in 2017. Baby boomers reported a median of $157,000 in 2017.

Misplaced confidence

However, American workers still need to make a lot of progress when it comes to understanding how to finance a comfortable retirement. The TCRS survey reports that almost two-thirds (61 percent) of workers were confident or somewhat confident that they would be able to fully retire with a comfortable lifestyle. 

This confidence is misplaced. Many workers don't have a clue about how much savings it takes to fund a long retirement. When asked how much money they would need to retire comfortably, the median response was $500,000.

But almost half (49 percent) of these workers were simply guessing. Only 15 percent used a potentially accurate method to estimate their retirement savings needs. Ten percent used a retirement calculator or completed a worksheet, and 5 percent said a financial adviser provided their estimate. 

That prompted Catherine Collinson, president of TCRS and author of the 2018 report, to make this recommendation: "Calculate your retirement savings needs or have a professional financial adviser help you, develop a retirement strategy and write it down."

How far will your savings go?

Let's look at some retirement savings challenges older workers face. Boomers report that they've accumulated a median savings of $157,000, but their assumed target savings amount is $500,000. Simply put, most boomers don't have enough remaining years of work to close this gap. 

But here's another challenge: While $500,000 may sound like a lot of money, it's not if you expect it to last another 20 to 30 years. Let's do a rough estimate of the amount of retirement income a boomer worker with $500,000 in savings might expect:

  • Using the 4 percent rule as a ballpark estimate of the amount of income that can be generated by savings, $500,000 can generate lifetime retirement income of about $20,000 per year (4 percent of $500,000 is $20,000).
  • According to Social Security's "2018 Fast Facts and Figures" report, the average monthly Social Security benefit was $1,460 per month for new retirees in 2017, or $17,520 per year. Add that to the income generated by savings and you get total retirement income of $37,520 per year.
  • If you're married, the average monthly Social Security benefit for spouses with new benefit awards in 2017 was $627, or $7,524 per year. In this case, the total retirement income for the married couple would be $45,044 per year. 

It's possible that many single retirees could get by on $37,520 per year and that married couples could get by on $45,044 per year. But remember that the $500,000 amount is a target. Most boomers will fall well short of saving that amount, according to a recent report by the Stanford Center on Longevity.

Tough choices ahead

The fact is, most older American workers haven't saved enough to retire full-time at age 65 under their current standard of living. So they face tough choices. They'll need to work beyond age 65, reduce their standard of living or do some combination of the two. To help make these critical decisions, workers need to understand how much retirement income they can expect to generate at different possible retirement ages.

Retiring in your 60s and living to your late 80s or 90s won't be easy. You'll need to do your homework to make sure you can live comfortably for a long time.