Americans Have Lofty Retirement Dreams, But Do Their Savings Stack Up?

When you think about retirement, what do you envision? You and your spouse strolling along a gorgeous beach like you’ve seen portrayed in every television commercial promoting the value of an investment broker? I’m going to guess most of you answered “yes” to that question.

Most people have grand plans for retirement, something we confirmed when we took a look at retirement saver data from our online Retirement Planner. We discovered that our users are hoping to save an average of $356k just for vacations over the next 34 years. And people who factored charitable giving into their plan allocated $340k for that expenditure alone. These are both quite ambitious lifestyle and savings goals.

But unfortunately for many retirement savers, those ambitious hopes don’t always add up to actual savings.

How Much Do You Need To Save For A Comfortable Retirement?

To fund a retirement on par with your current lifestyle each year, you need to have an average of 70% of your annual pre-retirement income. If you assume that as a retiree, you can generate 35% of inflation-adjusted earnings from Social Security, (provided, of course, that there still is a Social Security fund to tap into), you’ll still need to save about 15% of your pay over 30 years, according to the Center for Retirement Research at Boston College.

So, if you make $100k per year, you should be saving and investing $15k towards your retirement each year. That would mean saving and investing a total of $450k during your working years. No problem, right?

How Retirement Savings Really Stack Up

What’s the verdict? Are Americans saving enough to fund the retirement of their dreams?

According to our data, many users have just scratched the surface of savings. Baby Boomers reign supreme when it comes to retirement savings with $554k saved -- not too surprising since they’re closer to retirement, or in some cases, already retired. Gen X has saved $246k, or roughly half as much, but many of them have another 20 years of savings potential that can comfortably get them to retirement. Millennials, who should ideally have saved the equivalent of their annual salary by age 35 according to standard guidelines, have an average retirement savings of just $68k, which may put them behind.

Millennials: Low Income But High Hopes For Inheritance

Unlike their GenX and Baby Boomer counterparts, many Millennials hope to lean on inheritances in order to fund retirement. The average Millennial expecting an inheritance anticipates it to come in around $1.06 million — twice as much income as from their paychecks.

These Millennial would-be heirs are probably a bit too optimistic, considering only 56% of American retirees plan on leaving an inheritance to their children, average expected amount of that inheritance being $177k (according to a 2013 HSBC survey). Banking on a million-dollar inheritance is a hefty gamble when your retirement is at stake.

The Key To Turning Retirement Dreams Into Reality: Have A Plan.

No matter what level of retirement savings you’ve achieved, there is one thing that all savers can do to beef up retirement funds: make a retirement plan. Our analysis found that folks who create a retirement plan save an average of 75% more than those who don’t.

My hope is that seeing these numbers encourages more people to start planning, now. So if you’re ready, here’s what to consider:

1. Think of inheritance as a “nice-to-have”, not an integral part of your plan. Over-reliance on inheritance can lead to a retirement fund shortfall, especially with the significant charitable giving that many savers plan for.

2. Even if you’re in good health now, plan for increased health care costs as you age.

3. Save as much as you can, as early as you can.

If creating a plan from scratch feels too overwhelming, the good news is there are a lot of free tools that can help you out. Or, it might be time to think about a consultation with a registered investment advisor.

Regardless of how you start creating your plan, remember that having one in place is the best first step to funding the retirement of your dreams.