The Typical American's Retirement Savings Is Shockingly Low—Here's What To Do About It

Key Takeaways

• The median retirement savings for U.S. workers aged 21 to 64 is just $40,000 for those who have a direct contribution savings account.
• Social Security benefits make up nearly half of retirees’ income, so deciding when to collect can have a big impact on your retirement security.

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Many American workers don’t have enough retirement savings.

Among American workers aged 21 to 64 with any defined contribution savings, the median balance was $40,000, according to 2023 Census data recently analyzed by the National Institute on Retirement Security.

When the researchers included workers without retirement savings, the median amount saved in defined contribution plans was a paltry $955.

Retirement in the U.S. is often described as a three-legged stool, with people relying on Social Security, pensions, and individual retirement savings. But fewer workers have pensions. As a result, many retirees rely heavily on Social Security.

According to the NIRS study, Social Security benefits comprise nearly half of seniors’ retirement income. Workplace retirement savings, annuities, and life insurance made up just 19% of retirees’ income.

Yet for those who feel behind in saving for retirement, it’s possible to start catching up.

Saving even a little, starting when you’re young, can make a big difference. If you invest $200 a month starting at age 25, you would have more than $620,000 at age 65, assuming an annual return of 8%. By contrast, if you started investing that same amount beginning at age 45, you would have less than $110,000 at age 65.

Plus, if your employer offers a 401(k) plan, make sure to take advantage. With a 401(k), your upfront contributions are deducted from your taxable income, which can reduce the amount of taxes you owe. If you receive an employer match, try to contribute enough to receive the full match, as that’s essentially free money.

Related Education

Average Retirement Savings by Age: How Do You Compare?

How to Save for Retirement Without a 401(K)

But even if you don’t have access to a 401(k), there are other tax-advantaged retirement accounts you can use. An individual retirement account (IRA) has a much lower annual contribution limit than a 401(k)—$7,500 versus $24,500 for a 401(k)—but it has specific tax advantages, depending on what type of IRA you open and your income.

For example, with a Roth IRA, you pay taxes on your upfront contributions, but you don’t have to pay taxes on your withdrawals in retirement. That trade-off can pay off significantly if your income in retirement ends up higher than what you earn today.

Finally, you can think strategically about when to collect Social Security. By claiming early at age 62, the earliest you’re eligible, your monthly benefit drops by 30% compared with waiting until your full retirement age of 67. Waiting means bigger checks, but it also means forgoing years of payments. The right call depends on your marital status, dependents, and health.

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