By 50, This Retirement Savings Amount Puts You Ahead of Many Peers

By the time you reach 50, it’s natural to start picturing what retirement might look like and comparing your savings with what other people have accumulated.

That comparison only tells part of the story, but it can still help you gauge whether your retirement plan is likely to support you later in life. Here’s a look at what the numbers show and how to think about your own position.

What retirement savings look like at 50

The Federal Reserve’s latest Survey of Consumer Finances looked at account-owning households with a reference person aged 45 to 54. The median retirement account balance for the household was $133,000. Because this is a median, half of households had more and half had less.

That means if you are approaching 50 and your household has more than $133,000 in retirement accounts, you are above the median for account-owning households in that age range. Still, this figure does not include households without retirement accounts, so it does not describe everyone in the age group.

Why income-based targets are higher

Another widely used benchmark comes from Fidelity, which suggests having six times your current annual income saved by age 50. Under that guideline, someone earning $75,000 would aim for $450,000, which is far above the $133,000 median.

The gap is not surprising because the two measures are asking different questions:

• The Federal Reserve figure asks, “What have similar households accumulated?”
• The Fidelity guideline asks, “What will you need to preserve a similar lifestyle in retirement?”

Neither measure is a strict pass-or-fail test. Fidelity itself describes its milestones as aspirational rather than firm targets.

Why the benchmarks differ so much

Fidelity’s model assumes that, beginning at age 25, a worker saves 15% of income each year, including employer contributions. It also assumes retirement at 67, a similar lifestyle in retirement, strong stock market exposure during the saving years, and no pension income to depend on.

When those assumptions change, the savings target changes too. For example, workers without an employer match or people who are self-employed may have a harder time reaching the same level. Testimony before the Department of Labor’s ERISA Advisory Council has pointed to uneven workplace plan coverage and contribution levels as one reason many savers end up with less than expected.

Your retirement number depends on your own plans

A more useful benchmark is the amount you will actually need based on your expected retirement spending. Whether you plan to stop working at 62, 67, 70, or later, timing and lifestyle will shape your target.

Rather than relying on a general benchmark, estimate your annual expenses in retirement based on what you know you will need. Include housing, utilities, groceries, taxes, health care, transportation, debt payments, and hobbies. Then subtract the income you expect from Social Security, a pension, and other sources that do not come from savings to see how much your nest egg must cover.

The Federal Reserve median is best viewed as a comparison point, not a goal. Fidelity’s guideline factors in Social Security, but assumes no pension income.

Fifty is not too late

If you decide you are behind for your own retirement goals, there is still time to act. If you are still working, take full advantage of any employer match and catch-up contributions to improve your position.

The current 401(k) limits allow a regular employee contribution of $24,500 plus an $8,000 catch-up contribution, for a total of $32,500 for eligible participants age 50 and older. IRA accounts allow a $7,500 regular limit plus a $1,100 catch-up, for a total of $8,600. Those amounts are in addition to whatever your spouse contributes, which can help build the household nest egg.

Ways to narrow the gap

It helps to focus on the amount you want at retirement rather than only the gap between where you are now and where you think you should be. Because inflation and investment returns will affect the outcome, use a dependable calculator or speak with a financial adviser to estimate what it will take to get there.

If you cannot contribute enough by your planned retirement date, that does not necessarily mean the plan is ruined. In some cases, working two more years can reduce the monthly savings needed to reach your target.

The bottom line

Having more than $133,000 means you are ahead of many account-owning peers in your age group, but that does not mean you must hit a six-times-income target. Neither benchmark is precise for every household, and the right number depends on your budget and income sources.

It can also help to use the Social Security calculator in your my Social Security account. It lets you compare benefits at different claiming ages and shows how future payments could support your budget. Social Security should not be your only income source, but it is important enough to factor into your planning.

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