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Fed: Most Americans’ Finances OK, but Retirement Savings Lags for Many

Industry Trends and Research

A large majority of individuals say they are comfortable financially, but many also report that they are struggling to save for retirement, according to the Federal Reserve Board.

It its latest “Report on the Economic Well-Being of U.S. Households,” the Fed found that most measures of economic well-being and financial resilience in 2018 were similar to those in 2017, with 75% of adults saying they are doing okay or living comfortably – up 12 percentage points from 2013. The report draws from the Board’s sixth annual Survey of Household Economics and Decisionmaking (SHED) conducted in October and November 2018, which examined the financial lives of U.S. adults and their families. 

Overall, the financial experiences reported by the 11,000 adults surveyed were largely positive, and many families have experienced substantial gains since the survey began in 2013, in line with the nation’s ongoing economic expansion.

However, a sizeable percentage report that they have no savings, and even among those who do have some, many say they lack financial knowledge and are uncomfortable making investment decisions. According to the findings, 36% of non-retired adults think that their retirement saving is on track, but 25% report that they have no retirement savings or pension whatsoever. Among non-retired adults over the age of 60, 45% believe that their retirement saving is on track.

Not surprisingly, self-assessments of retirement preparedness vary with the amount of current savings and with time remaining until retirement. The report notes that young adults under age 30 typically believe that their savings are on track if they have at least $10,000 set aside for retirement. Adults ages 45 to 59 who say their retirement savings are on track typically have at least $250,000 saved. 

Based on this barometer, the findings show that slightly more than 2 out of 10 non-retirees under age 45 have retirement savings that meet their age-specific “on track” thresholds, while the fraction rises to 27% of adults ages 45 to 59.

Investment Decisions

Those with self-directed retirement savings accounts – nearly 7 in 10 non-retired adults – must make decisions about how the money is invested, but most lack confidence. According to the findings, 6 in 10 non-retirees who hold these accounts – such as a 401(k) or IRA – have little or no comfort in managing their investments.

In addition, self-assessed comfort in financial decisionmaking may or may not correlate with actual knowledge about how to do so, the report emphasizes. On average, respondents answered fewer than three out of five financial literacy questions correctly, with lower scores among those who are less comfortable managing their retirement savings. Among those who have self-directed retirement accounts, those who express decisionmaking comfort answered more questions (3.7 out of 5) correctly, on average, than those who express little or no comfort (2.9 out of 5). 

Moreover, the survey found that, on average, women of all education levels and less-educated men are less comfortable managing their retirement investments. While 58% of men with at least a bachelor’s degree are “mostly or very comfortable” making these investment decisions, just 38% of men with a high school degree or less are that comfortable. 

In addition, only 32% of women with a bachelor’s degree are comfortable managing their investments. The report observes that women’s comfort with investing does rise with additional educational attainment, but this increase is markedly more muted than is the case with men.