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Is The Savings Data Really That Bad?

For the most part yes, but there is hope.

Brett Arends did a writeup on what appears to be new 401k balance data from Vanguard—data that it updates for public viewing on a regular basis. The thing to look at are the median numbers not the average numbers. The numbers paint a grim picture of course as they generally have for years, regardless of whose survey you’re looking at.

It’s human nature to look at your age bracket to see where you measure up. If you’re reading an investment blog, chances are that you’re engaged enough that you have more than the median for your age group.

I think the tenor of Arends’ article is that something is going to have to give in terms of the government stepping in at some point to “fix it,” apologies to Brett if that is a bad read on my part. If that is the inference to take from Brett then you can bet it will not be done fairly. If you are 50 and have $300,000-$400,000 accumulated you’re in pretty good shape, maybe not ahead of the game but you’re unlikely to be in a desperate position when you stop working versus the 50 year old with $46,400 who will need to figure some things out to avoid being desperate.

I don’t know what sort of account balances would be required to get help (yeah, required is probably the wrong verb) but the $300k-$400k guy is on his own. I personally don’t view that as a negative. I don’t want to be on the hook, desperately waiting to get my handout. My preference is to be self-sufficient on all front or at least as many as possible. Hopefully you know yourself well enough to know whether this would bug you so that you can get right with it. I’m not saying we should not help people, I don’t know what’s best here, I just think it will happen, it will be beyond our control and I try to avoid getting worked up about things beyond my control.

Let’s circle back though. How much trouble is the 50 year old with $46,400 really in? If he can keep contributing and can work until 65 (longer would be better) he might not be in terrible shape. In the next 15 years could the S&P 500 market triple? From 2010-2020, so just ten years, it almost tripled. The decade before that it dropped 26%. In the 90’s it almost quadrupled and in the 80’s it did a hair better than tripling. So tripling in the next 15 years is not crazy talk even if it doesn’t happen.

If it merely doubles then his balance grows to $93,000, assuming 100% equities might be flawed but 40% of his money earning 1% won’t cut it. If in that 15 years he can save $5000/year and it gets an average annual return of 5% (linear returns are of course a flawed assumption) then the new contributions add up/grow to $118,281 plus the $93,000 and he’s got $211,000 which could almost provide $1000/mo in income on top of his Social Security. In 2021 the average Social Security payout is $1543 and if his spouse takes the spousal benefit of $771 then the SS payouts plus the $1000 from the portfolio adds up to $3314. All the better if the spouse has their own full benefit to take. There’s certainly not a huge margin of error here but if the mortgage is paid off by 65 then they’re in decent shape.

I think the important thing is to not view 50 or 55 or any other number as too late “so why bother trying.” Never stop trying.

One optimistic note about the data is that those are 401k balances not total retirement savings balances. If you are 48 and change jobs you’re likely to roll an old 401k into an IRA and then start a new 401k. So then you might be 49, one year into your new job and participate in that survey and tell them you have $8200 which is all they are asking about, not the $600,000 you have at Schwab in a Rollover IRA.