There is a "Retirement Crisis" in America.

Article after article is written about the lack of financial preparedness among Americans approaching retirement age.

In today's posting we bring together several threads helping to characterize the crisis, and suggesting an improvement.

This work, originally researched in June of 2021, was one of the first real-world use-cases of

and this effort drove some necessary improvements in the software itself, namely the capacity to calculate solutions for very LOW GOAL retirements, and to make fine-grained distinctions among contribution rates.

We were able to find large-scale information about the median 401K balances for several age-groups, as of the year 2020

and from a different source, the median salaries of workers by age-group, also for the year 2020

Happily, both data sets used the same age groupings. We merged the two sets of summary statistics, and added a new column, showing the calculated ratio of 401K_Balance / Salary for each age group. Here it is:

Age Median_401K_bal Median_Salary 401K/Salary Ratio 25 to 34 $10,402 $47,736 0.218 35 to 44 $26,188 $59,020 0.444 45 to 54 $46,363 $59,488 0.779 55 to 64 $69,097 $56,680 1.219

For perspective, the "4% Rule" suggests as a starting point, that this sum, DIVIDED BY 25, is a reasonable estimate as to the inflation adjusted payout that could be taken for at least 30 years (requiring some additional assumptions as to how this money is invested,

Thus, we're saying that the retirement payout for this hypothetical median retiree is: 1.219 / 25 = 0.04876 of final salary; only about 4.9% of that salary, available for helping with expenses beyond Social Security income during retirement.

That is less than one TENTH of normal, useful nestegg goals in the range of 50% and more. So for instance, a worker earning $5000 per month just before retirement, would be looking at retirement payouts of just under $250 per month, not $2500 per month, out of their nestegg.

Or, if they were expecting and depending upon the larger payout, they'd burn through the whole nestegg in 2 - 3 years.

We don't have actual data for any of the particulars, such as the average investment yield achieved, nor the amounts that workers contributed. However, the range of investment yields, contribution rates, and raises, that can work in concert to produce such dreadful results, is quite limited, so we can make some educated guesses.

Let us begin by applying the

Min Yield required for Broad Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 2.50% 1 3.811% 1.215X 4.035% 5.00% 1 1.805% 1.637X 2.995% 10.00% 1 * 0.005% 2.203X 2.224% from MAX: 9.25% 20.00% 1 * 0.005% 2.203X 2.224% from MAX: 9.25% KEYPARMS_25_65_95_RPL4.9%_SAV0.00X_I2.5%_R3.0%

The MOST that could have possibly been contributed out of salary, would have been 9.25%, and that would only be true at ZERO interest (technically, 0.005%). Contributions of 5% would have been limited to interest rates of 1.805%; contributions of 2.5% would have been limited to 3.811% interest. By "limited", we merely mean that anything more, would have caused the nestegg to exceed the 4.9% goal inferred from the data.

AT a contribution of 2.5%, the savings/salary ratio of 1.215X is close to the observed 1.219X, and a more refined calculation brings us to 2.52% contribution and 3.788% yield at 1.219X salary saved.

The 3.788% interest rate inferred here, seems high for an ultra-safe bank CD product, but according to

so this is quite plausible. The near-zero interest rates of 2020 through early 2022, warp our current perspective.

This calculation was done assuming 3% raises. Here are some alternate raise amounts:

RAISE CONTRIB YIELD 0.0% 1.30% 3.785% 3.0% 2.52% 3.788% 6.0% 4.30% 3.788%

To begin to visualize the scope of this issue, consider this calculation from

As long as we keep other conditions the same, at any given YIELD, the contribution will be proportional to the goal.

For instance, we can achieve the 50% goal with 20% contributions and 4.509% yield. So each 1% of salary contributed into an account yielding 4.509% will add 2.5% to the GOAL achieved,

and each 4% of salary contributed similarly would add 10% to the GOAL achieved at that yield.

Here is 50% GOAL -- same ages, raises and inflation:

Min Yield required for Broad Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 2.50% 1 10.405% 5.786X 8.643% 5.00% 1 8.447% 7.030X 7.112% 10.00% 1 6.485% 8.764X 5.704% 20.00% 1 4.509% 11.261X 4.441% 40.00% 1 2.512% 14.974X 3.339% 80.00% 1 0.490% 20.693X 2.417% KEYPARMS_25_65_95_RPL50%_SAV0.00X_I2.5%_R3.0%

To reach higher goals while keeping salary contributions fixed, requires more and more investment yield.

The middle column shows yields needed for the higher goals while holding the contribution at 2.5%.

The right-most column shows the Contribution needed for each goal if invested at 7.00% yield:

GOAL YIELD_Needed CONTRIB_Needed at 2.5% CONTRIB at 7.00% YIELD 4.9% 3.811% 0.82% 10.0% 5.851% 1.67% 20.0% 7.817% 3.34% 30.0% 8.962% 5.00% 50.0% 10.405% 8.34%

Some family budgets were tight; those people could not afford to contribute more than the minimum.

Some workers contributed more but then raided their 401K plans to pay for emergency repairs or medical bills.

Some workers shunned higher-yielding alternative investments, due to expensive fees.

Some workers shunned higher-yielding alternative investments, because they seemed too risky.

Some workers failed to recognize that "safety" has a flipside risk: That low returns might not beat inflation.

This material is not at all intuitive. Possibly with the assistance of tools (such as, ahem!, NesteggCycle.com), more people would have been willing to boost their contributions a bit, and/or accept some additional risk to grow their money faster.

The following table may help with some starter possibilities for achieving the 50% GOAL.

Each row is a valid "solution" -- That contribution AND that yield, if maintained, will reach the GOAL.

For example, an 8.00% salary contribution paired with 7.118% investment yield, will reach the goal, provided these are maintained throughout all the working years shown, and that the 7.118% investment yield continues throughout retirement.

Min Yield required for Custom_12_2 Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 2.00% 1 11.035% 5.460X 9.158% 4.00% 1 9.078% 6.587X 7.592% 6.00% 1 7.932% 7.431X 6.729% --------------------------------------- 8.00% 1 7.118% 8.140X 6.143% --------------------------------------- 10.00% 1 6.485% 8.764X 5.704% 12.00% 1 5.967% 9.333X 5.357% 14.00% 1 5.528% 9.858X 5.072% 16.00% 1 5.147% 10.351X 4.831% 18.00% 1 4.811% 10.816X 4.623% 20.00% 1 4.509% 11.261X 4.441% 22.00% 1 4.236% 11.685X 4.279% KEYPARMS_25_65_95_RPL50%_SAV0.00X_I2.5%_R3.0%

which include your desired GOAL salary replacement, the three ages, any pre-existing retirement savings,

current assumptions for raises and inflation; and whether or not you'd like to "dial down" the investment risk to a lower rate at retirement time.