The Retirement Savings Gap

Among typical working households with a 401(k)/IRA, the median balance in their plan(s) as they approach retirement is $135,000, according to the Center for Retirement Research's analysis of the Federal Reserve Board's 2016 Survey of Consumer Finances. This is not enough to provide much financial support in retirement and is well below what they should have saved over the years, according to Center for Retirement Research calculations.

The CRR's calculations assume an individual has median earnings and contributes 6 percent of his/her salary to a 401(k)/IRA from age 25 in 1981 to age 60 in 2016, with a 50 percent employer match, a 50/50 stock/bond portfolio, and actual stock market returns over the time period. The accumulated total would be $364,000 in 2016. But after subtracting fees and the average leakage (cashing out) rate, retirement savings falls to $228,000. That's still a lot more than the actual amount ($135,000) in the 401(k)/IRA accounts of older households. What accounts for the gap? Failure to contribute, say the researchers.

"A number of factors contribute to low balances," conclude the researchers—"less than full participation, low contributions, high fees, and leakages." By fixing these problems, "outcomes could be greatly improved."

Source: Center for Retirement Research at Boston College, 401(k)/IRA Holdings in 2016: An Update from the SCF

Median IRA Balance: $31,742

Individual retirement accounts hold 25 percent of all retirement plan assets in the U.S., reports the Employee Benefit Research Institute. In the 7th annual update of its IRA Database, EBRI estimates a median balance of $31,742 in the IRAs of individual owners in 2015. The average balance was $125,045. Here are median balances by age of owner...

Median IRA account balances
Under age 25: $3,565
Aged 25 to 29: $4,622
Aged 30 to 34: $7,113
Aged 35 to 39: $11,244
Aged 40 to 44: $16,738
Aged 45 to 49: $23,439
Aged 50 to 54: $31,440
Aged 55 to 59: $41,733
Aged 60 to 64: $57,859
Aged 65 to 69: $78,612
Aged 70-plus: $80,968

IRA balances are modest because few owners contribute in a year's time—only 14.1 percent contributed in 2015. Those with Roth IRAs are more likely to contribute (26 percent) than those with traditional IRAs (7 percent). Among those who contributed, only 54 percent contributed the maximum allowable amount.

Source: Employee Benefit Research Institute, 2015 Update of the EBRI IRA Database: IRA Balances, Contributions, Rollovers, Withdrawals, and Asset Allocation