The COVID-19 pandemic has wreaked havoc across all sectors, creating an uncertain economic environment worldwide. Consequently, many people are concerned about retirement savings in the US and their financial future, with 40% of Americans fearing they may not be able to retire due to financial setbacks caused by the pandemic. To evade these economic uncertainties, it is essential to understand the average amount of money saved for retirement in the US and the effects of the pandemic.
Average Retirement Savings in the US
In 2019, the average American household had $65,000 in retirement savings, while the average American under the age of 35 has $13,000 in retirement savings. Different factors contribute to the overall savings.
- Age: Although 62% of Americans aged 18 to 29 have some form of retirement savings in the US, only 28% believe they are on pace to retire. A 401(k) or 403(b) account is held by 55% of non-retirees, whereas 25% have no retirement savings. It is also important to note that even though Medicare coverage kicks in at 65, 51% of Americans retire at age 61 or earlier, and 23% retire between the ages of 62 and 64.
- Education: The average retirement savings account value for Americans with a high school diploma is $20,000, while those with a college diploma have an account value of $119,000.
- Ethnicity: White Americans have around $45,000 more in retirement savings than Black and Hispanic Americans. Despite having larger savings, White Americans retire later than Black or Hispanic Americans.
- Social Class: From 1989 to 2019, the retirement savings of households in the bottom 25% of net worth increased by $2,710. During the same period, the top ten percent of net worth increased their savings by almost $600,000.
These are some of the factors that affect the average retirement savings and social security COLA. Surprisingly, gender plays a major role in determining the average retirement savings.
The gender gap in retirement savings in the US has always been persistent. Even before the pandemic, women had less confidence in their retirement plans compared to men. The pandemic has further highlighted this gender gap.
The Pandemic & Gender Gap
The Covid-19 outbreak has impacted the retirement plans of roughly 69 million Americans. According to a new study by Age Wave and Edward Jones, around 32% of Americans preparing to retire said they would retire later than planned due to the pandemic. Approximately 11% plan to retire sooner.
A difference is prevalent in the retirement plans for men vs. women. While confidence among men in their ability to retire when and how they want is improving, retirement funds held by women plummeted during the epidemic and have yet to fully recover.
Maddy Dychtwald, the co-founder of Age Wave, stated, “This pandemic really hit women very hard. They have been hit much harder than men. It has had the result that they have saved less for retirement — and they have saved less through the pandemic.”
Why Women Experience a Greater Retirement Savings Hit than Men?
According to the survey, only 41% of women were able to continue saving for retirement on a monthly basis during the epidemic, compared to 58% of males.
It makes sense when you consider that throughout the epidemic, women had greater unemployment rates than men. Moreover, many industries that are severely hurt by Covid-19 employ more women than men.
Women had less confidence in their retirement savings rate and goals even before the pandemic for understandable reasons. Earnings among women are often lower, resulting in lower lifetime savings rates.
According to the Age Wave and Edward Jones analysis, if a man and a woman both work full-time from the ages of 23 to 65, a woman will typically earn nearly $469,000 less than a male due to the gender pay gap. That does not account for the fact that women are more likely to take time off from work. For example, the survey revealed that between the ages of 18 and 52, women in the baby boomer generation took an average of eight years off work.
When you factor in missed income, promotions, Social Security, and pensions, lifetime earnings for women often fall even further behind men – roughly $1.1 million less.
The first step to addressing the issue for women who are behind in saving for retirement is awareness. It will encourage them to develop a comprehensive financial strategy that will put them on track to save for the retirement they desire.
Secure Your Retirement Plan & Financial Future with Windes
Individuals who have a financial plan have more confidence and are more likely to achieve their financial goals. Therefore, it is essential to plan ahead. Employers must also develop competitive employee benefit packages to attract and retain talent and ensure a secure financial future for all employees.
Windes can help. We understand that saving for retirement is a highly personal path determined by age, income, inflation, projected retirement income, and other factors. Our professionals will provide advice and we offer third-party administrative services for employer-sponsored retirement plans.
Connect with us today for more information.