How Do You Compare? New Retirement Savings Data Is Out

In today’s episode, you’ll learn more about:

• What Fidelity’s latest retirement savings data shows by age and generation
• Why average and median tell two very different stories
• Why retirement readiness is about much more than your 401(k) balance
• How pensions and guaranteed income can significantly change the retirement equation
• Why two families with similar account balances can have completely different retirement outcomes
• A better way to measure retirement readiness than comparing yourself to everyone else

Listen Now:

The Smart Take:

Go Inside the Episode: 

0:00 – Intro

2:15 – Average account balances

5:45 – Median household net worth

7:04 – Why income matters

11:56 – Lifestyle also matters a lot

15:12 – Why comparisons don’t work

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

One of the most common questions I have been asked throughout my career is surprisingly simple. How do we compare? Are we ahead? Are we behind? Are we about average? Well, recently Fidelity released updated retirement savings data that gives us a snapshot of how Americans are doing. Today, I want to share a few of those numbers, but more importantly, explain why comparing yourself to an average only tells part of the story.

Walter Storholt:

Hey, we’re back on Retire Smarter. Walter Storholt alongside, as always, Tyler Emrick, chartered financial analyst, certified financial planner, and one of the wealth advisors at True Wealth Design. And yes, we’re talking kind of the comparison game on today’s show.

Tyler Emrick:

Oh, yeah.

Walter Storholt:

But every year it’s kind of fun to see these numbers come out. Well, let me retrace that.

Tyler Emrick:

It is.

Walter Storholt:

It’s either fun to see these numbers and be like, “Whoa, I’m way ahead of everybody else.” Or it could be-

Tyler Emrick:

Yes.

Walter Storholt:

Depressing if you’re on the other side of that and going, “I’m kind of way behind for where I am in my age and where I should be.”

Tyler Emrick:

I got something for you here if you’re feeling that way for sure. But hey, they’re data points, right Walt? Always fun to kind of explore data points. I kind of did it in the lead in, I was kind of talking about that. It’s on the minds of a lot of clients and individuals that I meet with, especially at the beginning, right, when we’re getting to know each other, maybe they’re just starting to work with a financial advisor and inevitably in some way, shape, or form it’s how do we compare, right? How are we doing? Are we doing okay? What are some of the other clients that you work with? How are they, right? Naturally, I mean, I think that makes sense from the standpoint of like, well, hey, are we the right financial advisor for them, right? Are we working with individuals in a similar situation? But then too, inevitably, it’s that almost fact check, right Walt?

A lot of the times individuals are coming to us when they get serious about retirement or some other financial planning need. And inevitably you kind of got that, “Ooh, are we doing all right? Are we going to be okay?” Let’s get some of these questions answered. So I think it’s natural to ask them, but I though today would be a fun way for us to kind of dive in and explore the topic a little bit more with, well, hey, let’s start with some data points and kind of see and talk through our thoughts on it.

Walter Storholt:

And this is so natural because you’ve got young kids, Tyler, and we’ve talked about my little guy at home about to turn nine months old, so that’s exciting. And from literally day one, he’s been compared to his peers, right? You’re getting what percentile-

Tyler Emrick:

The height.

Walter Storholt:

Of their heads [inaudible 00:02:33] and are they in the 50th or higher percentile of weight and height and all of those metrics.

Tyler Emrick:

True.

Walter Storholt:

So it’s just part of life, is comparing-

Tyler Emrick:

It is.

Walter Storholt:

Ourselves to others. And what we do with that information is kind of the next thing. So anyway, I just wanted to-

Tyler Emrick:

Yeah. And I’ve been in that camp, right?

Walter Storholt:

How this rang true to me is-

Tyler Emrick:

Because hey, I got-

Walter Storholt:

Going through all those numbers.

Tyler Emrick:

I’m a little short, right? So my kids naturally, I mean, they’re in that bottom percentile in the height. So every time I’m like, “Ah, not sure I’m raising the basketball player, but we’ll see what happens.” Maybe gymnasts or something like that. But yeah, so now I know exactly, exactly what you were talking about and maybe get a little bit of anxiety.

Walter Storholt:

Hey, our guy went from the third percentile in height and weight to the 20th at his last check. So he’s packed on little bit of pounds.

Tyler Emrick:

That’s a pretty good jump. That’s a pretty good jump, right? And oftentimes, I mean, Walt too, when we do these comparisons, I think it’s almost surprising to know like, well, what is the balance, right? I mean, even when I look at these numbers and they don’t change too much from year to year, but Fidelity study that we’ll reference here and hey, might as well kind of dive in and show some of the numbers, right? But when you kind of look at individuals age 55 to say about 70, the average account balance is not too different, right? We’re really sitting at about 250, 260,000 bucks on average inside the 401ks. And that’s an average. That’s not a median for our math whizzes out there. It’s an average. So it’s getting pulled by the extremes on either side. So yeah, but that’s it. About 250, $260,000 is the average balance.

And this is a huge 401k provider, Fidelity, probably one of the, if not the biggest employer plan custodian out there. So got a lot of data points to kind of look at. Fascinatingly enough too, they even broke it down a little bit by age. So as you could imagine, baby boomers are still about that 260 mark. Gen X, a little bit lower, just above 200,000 there. And then for any of our millennial listeners, a little over 82,000 is that average 401k balance. So I don’t know, Walt, does that surprise you? You see these numbers though. Probably not. I’d be fascinated to think if individuals-

Walter Storholt:

Yeah. I guess just because I’ve seen them a lot, then the surprise doesn’t take into account. And then you’re thinking a lot about at least where my head goes is those extremes obviously-

Tyler Emrick:

Sure.

Walter Storholt:

Take you in a lot of different directions. And then also I think about our situation. We got a lot of different types of accounts. So it’s not, like it doesn’t tell the whole story. And I know that’s one of your main points-

Tyler Emrick:

It’s the key. You’re right.

Walter Storholt:

In the moment, but that’s just-

Tyler Emrick:

It does.

Walter Storholt:

Where my brain immediately goes. Maybe it’s in a defensive way of like, okay, well, hold on.

Tyler Emrick:

Yeah. But thinking back on it, I should have been like, “Hey, everybody listen. Take a guess. What do you think the average balance is?” Maybe pause for effect. Maybe I missed a little bit of the opportunity there, but. Yeah. But it’s not too dissimilar, right?

Walter Storholt:

I guess I’m skewed because we talk all the time and I know that you work with families who have saved a lot for retirement typically-

Tyler Emrick:

Sure.

Walter Storholt:

And have done well. And so I would’ve guessed much higher for that baby boomer-ish bracket.

Tyler Emrick:

I think I would’ve, right?

Walter Storholt:

But it probably is accurate for the families that you work with, that it would be much higher.

Tyler Emrick:

Sure. Well, even across the board, right? I mean, I think it’s what’s real for you, right, and what you’re experiencing and your perception on things. The median household net worth, which encompasses a little bit more, right, from the study is a little bit higher. Typically, those studies are saying, “Hey, for our individuals, that 55 to 70 range, you’re probably pushing a little closer to the 400,000 mark.” But that’s even including your house, right, and kind of what’s included-

Walter Storholt:

Okay.

Tyler Emrick:

In there too. So when we incorporate some of that-

Walter Storholt:

Not just the equity in the house, but the value of the house?

Tyler Emrick:

Well, the equity. I’d be the equity in the house. Exactly right.

Walter Storholt:

Oh, the equity. Okay.

Tyler Emrick:

Just the equity in the house. Yep. And all accounts, right? So a little over 400,000 in a net worth is the median. Now that is a median, not an average, right? So it’s not getting skewed by those outliers there. But the point that you alluded to earlier is I think the whole point of the episode here, is that numbers like this, whether it’s 401k balances or net worth, they really aren’t telling the whole story because when you look at your total household finances and kind of snapshot of it, there’s all sorts of things that might skew one way or the other or aren’t necessarily captured in account balances, right? So the first thing that kind of comes to mind is I wrote down income matters. So what I mean by that is that, well, I’ll just kind of maybe share it in a story, right?

Last week I was in a meeting and we were sitting down with a couple, wonderful couple. I just actually started working together fairly recently. And they were in a wonderful situation to where both of them actually had pension plans, right? Here in the state of Ohio, we get a lot of state employees, right? So teachers through STRS, OPERS, FERS, federal employees. We have a pretty decent federal employee base here that we work with. All these individuals and some of the companies that are rooted here in Northeast Ohio have been around for a while, so they have pension plans that are here, right? But for this family, they were lucky enough they had spent their working careers pretty much at the same employers and they had accumulated these two very, very nice pension plans. Pension plans do not show up as a balance inside of your 401k.

And for their particular situation, we were able to kind of go through and they are going to be making exactly the same amount, if not a little bit more when they retire on those two pension plans as their income that they have kind of coming in now, right? So they would look at a study like this and go, “Well, hey, what is that pension plan worth, right?” You know how much you would have to have inside of an IRA or a 401k to spit out a stream of income that replaces what you were working while you were working and your W-2 income? I mean, those balances would have to be tremendously high, right, to be able to replicate some of these pensions that are going to be afforded to families and individuals that are not captured at all.

I mean, shoot, even my own personal family, my dad, my dad was a bus mechanic that worked for the state. He had a state pension, right? That pension plan is what he lives off of, which is tremendously beneficial. There was some legislation that passed. My mom had passed a number of years ago. So he wasn’t even getting anything off of my mom until some recent legislation that passed to where the WEP GPO, these fancy terms for state employees. You guys, if anybody’s listening, you know these, you dealt with them for your entire life, but it kind of lowers your Social Security payment or wipes it away. So my dad wasn’t even getting anything from Social Security on my mom.

Well, that changed and then he popped, but he lives off his pension and Social Security, right? Those again, I’ll say it again, they’re not reflected at all inside of some of these statistics and some of these numbers that are trying to do it. So if you find yourself in that situation to where your employer or you have a state pension, definitely be thankful and definitely account for that as you’re kind of thinking about just the job that you’ve done saving for retirement and is it possible? So, but pensions can be kind of sneaky Walt, for sure.

Walter Storholt:

Yeah. My wife has a pension from her first job and will have a second one from her current job, however long she ends up working there. So I know that retirement’s still over 20 years away, but it’s really hard to incorporate that into the plan, especially this far out and put it into context versus being able to just look at account balance numbers. So-

Tyler Emrick:

It is.

Walter Storholt:

I feel like that story really rings true. I’m kind of pretending they don’t exist and trying to plan for retirement without them. And then they’ll just be a pleasant surprise-

Tyler Emrick:

That’s fair. Well, and the longer time that you have too, even if you’re 10 years out, well, hey, if the pension’s still going, some of those estimates, they got to make assumptions, right? What are you making? What are you paying in? Rate of return. Some of those other things are kind of factored in. A lot of times it’s very formulaic, but too, the farther you get from it, the more uncertainty, right? I mean, is the pension going to be there? I mean, I’m sure some of our listeners have gone through pensions that are in the PBGC right now, right? The Pension Benefit Guarantee Corporation, because the pension kind of went under and the corporation doesn’t run it anymore or they’ve sold the pension to another company and they don’t run it through the employer any longer. So pensions aren’t necessarily foolproof, but certainly they add a little bit of buffer and aren’t necessarily replicated in some of the numbers that we’d show. So definitely consider that. So income definitely matters.

Speaker 3:

What would your life look like if you designed it around your true wealth? It’s a powerful question and one that True Wealth Design helps individuals, families, and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.

Walter Storholt:

There’s another whole level I feel like we’re not talking about though when you say account balances don’t tell the whole story. And it’s that whole flip side of the equation, right?

Tyler Emrick:

What do you mean?

Walter Storholt:

What are you going to spend in retirement?

Tyler Emrick:

It is.

Walter Storholt:

Because that’s a huge moving piece that can totally change whether 250 is enough in your balance versus 500 or a million.

Tyler Emrick:

Oh, correct. Right. I mean, especially as you think about where you live, where you’re going to be, what’s it going to need to replicate and live the life and the retirement that you want, right? And some of those good saving habits and things like that come to fruition, right? I kind of think back to a family that I’ve been working with for a number of years and account balances are modest. But when I think about, they’ve been retired now for over six years, right? Hey, all right they’re in retirement, right? They’re maybe not pros of retirement, but they’re getting there, right? They’re seasoned vets, right? Six years in, they kind of got a cadence. They got the rhythm in there. And when we first started talking and working together, they were back to that whole, maybe it wasn’t how do I compare, but do we really got enough, right? But when we got down and started looking at their financial plans, one of the big things, I mean, they had their house paid off, right?

So they don’t have a house payment, right? Cars, they don’t have to have a new car every single year. He’s very handy on cars. So they trade cars in and out and he works on them and they kind of make a… They don’t have big car payments, right? So when we get down into that flip side that you mentioned earlier where it’s like, well, what do I need? Well, they did all the things that they needed to, to get stuff into a situation to be like, well, hey, I don’t have these big bill payments that I need to kind of carry in throughout retirement. We don’t need to have as much in there to kind of replicate. And they’ve been living off really Social Security for the main part, right?

And their retirement, every time that they come in here, I mean, they speak glowingly about their grandkids and the trips that they were able to take. Maybe they’re not going down to the most expensive trip in the Maldives, right, and they’re doing these big travel things, but they’re still taking trips with their family. They’re keeping it local in the Midwest. They’re living the life that they want. And that’s what retirement looks like to them, right?

As advisors, we talk at length with our families and try to understand what does that retirement picture look like to you, right? What is going to make your life fulfilling? Because depending on what that life looks like, to your point, right, that’s what’s going to drive the math behind how much that we need to get there. Right. Hey, if you’re able to have a little bit of a solid nest egg, have a pension and maybe Social Security or Social Security cover and your lifestyle needs and you don’t have any debt, you can go a long way on that Walt.

So that spending equation, to your point, I think is very valuable conversations. And some of the times they’re the funnest conversations too, especially if you have a couple or a spouse, that they’re just getting into that. “Well, I don’t know if I want to do that,” or “Hey, I didn’t think about this or…” That conversation is very fun and productive to have in real time. And we have them all the time with the families that we work with for sure, so.

Walter Storholt:

So it sounds like comparison is maybe not the best way forward. It’s not the best method to use to try and really assess how you’re doing and where you need to go and all those kinds of things. It’s either inaccurate, or unpredictable, or unreliable as a metric or sometimes just confusing.

Tyler Emrick:

Well, we’re all people, right? And we all have situations that are vastly different, right? I always give my dad a hard time because he’s like, “Hey man, my buddy said we should probably do this.” Right. Or, “Hey, we should do that.” I was like, “Well, what’s his situation? What is it like? Is it applicable?” Right. Or some of the statistics around, we’ve done a lot of those or especially this early podcast on the 4% withdrawal rule and some of these other rules that work for the averages. Well, are you average? Does that really describe you? Are you literally right there in the middle, in the average and so the average advice is going to kind of work for you? More often than not, no. Right. That’s not. Because you could have a family too that’s completely on the flip side, right, to where that lifestyle goal and spending needs are vastly different, right?

Maybe we have individuals that want to retire and they still have kids in school, right, and they want to pay for those schools and those spending needs are there or they do want to take the trip to the Maldives and that is what their retirement picture looks like. And that’s what their lifestyle that they want to accomplish is. That’s perfectly fine and that’s great. And then it’s saying, well, hey, let’s run those plans. Let’s take a look at it and find, well, what does your bucket need to look like to make sure that you could do all those things that you want to have on it? Some people don’t want to have their car for 10 years and they want to get a new car every couple years, or they want to have a second home or they want to do all these things. And that is totally fine, right?

I think this whole thing of you save, you build your wealth. It’s our job to help you realize how you use that wealth and whatever it looks like for you, right? And let’s be dynamic with it. Let’s continue to have conversations with it. And I mean, Walt, oftentimes too, those things change, especially once you get into retirement, right? You might think one thing and then it kind of shifts and your priorities change and then you start to think about it. Or hey, maybe we’ve talked about plan results so much and saying, do you really want to die with just four million bucks inside to your heirs or charities that are going to get it? Do you want to maybe start? How else could we maybe better use this while you’re alive that you would get enjoyment out of it? And those are some of the funnest conversations we have.

So back to your point, yeah, I’d urge individuals and families like, hey, know the numbers, fine comparison, but don’t necessarily start making some of your financial decisions on how you compare to some of these averages or some of those articles that are on ARP talking about these retiree situations or not. It’s very, very personal and very specific to you. I would urge you to start thinking about can we retire when we want? Can we spend the way that we want? Are our taxes manageable? Can we afford the healthcare? What resources do we want to use in life, and what are we trying to accomplish, and how do we plan on living our retirement? Those are all kind of better ways to start with and better things to start asking and thinking through. And then we can build the plan around it and see what’s possible, so.

Walter Storholt:

Yeah. All great points, Tyler. It gets me thinking if somebody’s watching or listening to today’s episode and they’re like, “Yeah, this resonates. This makes sense. I’ve been doing that comparison, but I really still don’t have a great grasp of how ready I am. Or I feel more ready, but the comparison tells me that I’m not.”

Tyler Emrick:

I’m not.

Walter Storholt:

“So how do I reconcile that?” It’s all with better planning, proper planning, and you can do that by going through the process. And it does take a little bit of time and conversation. Look where you are now and start figuring out where those gaps are, how you’re going to bridge those areas and just solving the puzzle. And that’s what Tyler and his team help people do all the time at True Wealth Design, literally every single day. And so if you’d like to se if you’re a good fit to work with the team, you think you’d fit in and be similar to one of the families that they’ve helped out in the many years till now, you could certainly do that.

All you have to do is click the link in the description of today’s show. That’ll allow you to schedule a 20 to 30 minute discovery call with Tyler or an experienced wealth advisor on the team and you can discuss your situation in specifics and go from there. Again, that’s at truewealthdesign.com. Click the let’s talk button or simply look in the description of today’s show and click that button as well and click that link and you’ll be able to schedule that time to meet. Tyler, good episode today. This was enjoyable and we’ll look forward to catching up with you again soon.

Tyler Emrick:

Yeah, it was fun. We’ll catch you on the next one.

Walter Storholt:

Sounds good.

Tyler Emrick:

Yeah.

Walter Storholt:

We’ll see everybody next time right back here on Retire Smarter.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.