How will you spend your additional 30 years?

You’ve seen the headlines time and time again: we are living longer. Reaching 100 years of age and beyond is realistic for many, 30 years beyond the life expectancy in the 1970s1, which doesn’t feel so long ago. Are Americans mentally and financially ready for much longer lives?

In our continued efforts to better understand longevity and the state of Americans’ financial lives, Bank of America sponsored The Stanford Center on Longevity special report, Seeing Our Way to Financial Security in the Age of Increased Longevity, with a focus on four key areas: U.S. home ownership, prognosis of Americans’ retirement account participation, Baby Boomer savings and debt, and women’s financial decision making. Here we explore the findings on retirement savings.

The study revealed that the majority of Americans from all backgrounds are not on a path to fully retire at age 65.2 Even under the most optimistic assumptions, most workers are not meeting targeted retirement savings goals. This includes younger generations as well, who are actually lagging behind their goals more than older generations. As a result, it is likely people will need to work beyond traditional retirement age, change their standard of living, save more and spend less, modify retirement income strategies, or a combination of some or all of these.2

According to the study, researchers at the Boston College Center for Retirement Research calculated the savings rate required for a medium-income earner to attain a 70% salary replacement rate and found that individuals who start saving at age 25 and plan to retire at age 65 need to contribute 10% of their income to retirement plans continuously every year. Those who start at age 35 or 45 should contribute more: 15% and 27%, respectively.2

Retire at Start Saving at Age 25 Start Saving at Age 35 Start Saving at Age 45
62 15% 24% 44%
65 10% 15% 27%
67 7% 12% 20%
70 4% 6% 10%

Stanford Center on Longevity, The Sightlines Project, Seeing Our Way to Financial Security in the Age of Increased Longevity report, October 2018.

Takeaways

Download the full report to review all of the findings.

Employers can help improve the retirement security of their employees by adopting auto-enrollment and auto-increase features, and by providing employees with estimates of their retirement income.

Employers can consider alternative career paths for older workers as part of their overall retirement program.

Review effective plan design strategies and financial wellness solutions with your Bank of America Merrill Lynch representative.

1 U.S. Center for Disease Control, Life expectancy at birth, at 65 years of age, and at 75 years of age, by race and sex: United States, selected years 1900–2007, 2010.

2 Stanford Center on Longevity, The Sightlines Project, Seeing Our Way to Financial Security in the Age of Increased Longevity report, October 2018.