What is the Average Retirement Savings for Young Adults?
Many young adults are concerned about their ability to save for retirement. This concern is not unfounded. A recent report suggests that on average, young adults save around $5,000 for retirement, while the median savings amount is closer to $2,000. This means that most young adults are not saving enough to meet their retirement needs.
Factors Influencing Retirement Savings
The available data shows that having a good job where earning a high income can significantly impact a person's ability to save for retirement. Those who earn more are likely to be in a better position to set aside a portion of their income for retirement.
On the other hand, those who earn less face significant challenges in saving for retirement. The struggle to make ends meet is often a major hurdle. Many small businesses and non-profits, such as the company my wife worked for, have waiting periods for starting a 401k plan. My wife had to wait three months before she could start contributing to hers. This delay can hamper young adults' ability to start saving early.
Moreover, the matching contributions offered by companies can vary. In many cases, the matches are not particularly generous, which further reduces the potential retirement savings. For these reasons, it's not surprising that many young adults have limited retirement savings.
Total Retirement Savings Picture
When looking at data across different age groups, the overall picture is not much better. Total 401k balances tend to be relatively low, and according to various studies, the average balance is about 3–4 times higher than the median balance. This suggests that for about half of the population, saving for retirement is not a significant part of their financial planning. The higher end of the income scale is responsible for the majority of savings, which skews the average upward.
It’s worth noting that the data typically focuses on 401k balances and does not account for all retirement savings or consider any other retirement accounts such as Individual Retirement Accounts (IRAs) or taxable accounts. Many people, like myself, have multiple 401k accounts from previous employers or an IRA due to rollovers. These additional savings could significantly impact the total retirement portfolio, but 401k balances alone may not give a complete picture.
Conclusion
While the average retirement savings for young adults is around $5,000, and the median is closer to $2,000, the outlook for long-term financial security is not promising. Early and consistent saving, combined with access to robust retirement plans and company matches, is crucial. However, given the current financial realities, many young adults may need to consider alternative strategies to ensure they have enough savings for a comfortable retirement.