May 7, 2024 | 4 MIN READ

You Only Saved $100K for Retirement, Now What?

How many Americans have under-saved for retirement?

Recent studies show that most Americans are not adequately preparing financially for their retirement.

According to the Fed’s 2021 Report on the Economic Well-Being of U.S. Households about 45% of U.S. households have no savings in a designated retirement account – such as an IRA, 401k or 403(b) — and approximately 25% of households have no retirement savings at all. Additionally, about 38% of those aged 18-29 have not yet begun saving for retirement. Of those who have saved, per the Survey of Consumer Finances, the median amount saved for retirement was about $87,000 in 2022.

How big a problem is this for people?

These savings trends are simply not robust enough for individuals or for the country. Unpredictable federal and state government benefits (due to increasingly unpredictable budget deficits and debt loads) and a recent resurgence in inflation make saving for retirement much more urgent. Starting a savings plan as early as possible is paramount.

An individual who saves $100 a month from age 25 to age 65 and invests it to earn 7.5% per year will have approximately $292,000 at age 65. If they wait until age 35 to start saving, they will end up with $148,000, and waiting until age 40 leaves only $98,000 in savings at retirement. Even achieving these basic savings results will take foresight, discipline and some basic investment knowledge.

What should they do?

Many Americans will not be satisfied with the quality of retirement afforded by these minimal savings rates when supplemented only by Social Security. Savers will need to do more. For a comfortable retirement, savers should cut back on spending today where possible and increase the amount they sock away monthly. They should also consider starting to save earlier, take advantage of employer-sponsored retirement plans (especially those with an employer match), invest appropriately to attempt to keep up with inflation, and seek out opportunities for pension income or other post-retirement income streams such as real estate.

How can you make it work?

The reality is that $100,000 in retirement savings is likely not enough to supplement Social Security for a lifetime. It may be adequate to serve as emergency funds for the various larger household expenses that may come up, such as car repairs, household maintenance, property taxes, etc., but there is little room for error. There will likely not be much left over monthly for entertainment, travel, gifts or many of the other simple pleasures of life. The recent resurgence in inflation, particularly in food, electricity, heating, household goods and TV streaming services like Netflix, will quickly stretch a budget that relies primarily on Social Security and/or small pensions.

A retiring household with $100,000 in savings will need to protect the money in safe assets such as savings accounts, money markets, short-term Bank CDs and U.S. Treasury Bills. These are low risk, liquid and earn a reasonable rate of interest today. The interest earned, up to perhaps $4,000 to $5,000 per year, can be used to supplement monthly expenditures. It would not be advisable to invest in higher risk investments such as mutual funds or stocks unless there is a substantially larger amount saved or a higher level of income than just Social Security. Retirees should attempt to protect these funds so they can last as long as possible through retirement.

Are there any "catch-up" provisions in retirement savings plans people can use to bump up savings in the short term?

Wherever possible, investors should take advantage of “catch-up” provisions afforded by IRAs and retirement plans at work. In 2023, wage-earners can contribute up to $6,500 into an IRA or Roth IRA, and those over age 50 can contribute an extra $1,000 catch-up contribution for a total of $7,500 for the year. In 2024 the limits rise to $7,000 and a $1,000 catch-up for a total of $8,000. For employer-based retirement plans the contribution limit in 2023 is $22,500 with a catch-up limit of an additional $7,500. That limit rises to $23,000 and $7,000 maximum catch-up in 2024.

How about part-time jobs or passive income?

Part-time employment and passive income are essential components of retirement income for an increasing number of Americans. While traditional part-time work is an option, there are also other choices:

  • Leverage skills you have developed during your lifetime and career — websites such as Fiverr, Upwork, Guru and others allow people to advertise and sell access to their skills and knowledge. Some employers (including public entities) also provide opportunities for part-time paid consulting work after official retirement.
  • Teach or Tutor — locally or online through tutoring companies.
  • Childcare — locally or through online services.
  • Buy/Sell items in online marketplaces — use your lifetime of expertise in home décor, art, fashion or collectibles to sell or re-sell items online.
  • Rent space — rent a room, redo a garage or other property to rent as storage or living space.
  • Tap into the gig economy — Uber, Lyft, DoorDash, Amazon Mechanical Turk, TaskRabbit, Gigwalk, Microworkers – all allow people to complete smaller paid tasks on demand.
  • Traditional local temp agencies — yes, they still exist!

Can Americans in this situation retire late?

Retiring later will be a necessity for many Americans in future years. As the age to receive Social Security increases and life expectancy and health trends improve, Americans will find themselves needing to work longer (or save more!).

Staying healthy and energetic, preserving a positive work/life balance and finding a receptive employer will be key to having the ability to choose a longer working life. Remaining a viable option for employers is key, including staying aware of updated technology and industry-related information and actively ensuring that one’s job skills remain sharp through ongoing training.

Source: Stuart Sprenger, Senior Wealth Advisor