Savings rates in the US are tragic, but very few people realize how bad it really is. Even as I save at a very high rate (almost 70% of income and growing), I didn’t realize what a low savings rate really meant with regards to retirement age.
The reason for this is simple. If you are saving at a high rate, you are filling up your retirement nest egg much faster. But
equally more importantly, you are also setting a precedence for spending less in retirement because you haven’t created a superficially high expense requirement. The chart is sobering because it shows the average American will likely never retire without Social Security, not something I would bank on once the baby boomers are finished wreaking their financial havoc.
The x-axis shows the years until retirement. Note: this is not the retirement age, this is the number of years one must work once setting up a savings plan. The y-axis is the savings rate. Besides 10% increments, I also added typical savings rates of 6% (3% 401K + 3% corporate matching) and 18% (common 401K max of 15% + 3% matching). Let’s discuss the numbers:
- Saving at 70% will get yo uto retirement in 12 years. This is roughly where I’m at.
- Saving at 50% will take 22 years. Not bad, still a fairly early retirement if you start when you first begin working.
- Saving at 18% will take 45 years. This means if you start at 22 with 0 debt, it would take until 67. Add in some college debt and it pushes out quite a bit because interest works against you.
- Saving at 6% will take 79 years. In other words, you won’t ever retire without Social Security or some loving children that will take you in.