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Understand Your Finances

How Americans save for retirement, and how it's changed

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New research shows that baby boomers, many of whom are parents of millennials, have been having the "money talk" with their children because they want to be more open about finances than their parents were with them. This has given millennials more ambition to retire earlier than the generations before them. In fact, according to the Chase Generational Money Talk study, millennials are starting to save for retirement 17 years earlier than their baby boomer parents did.

But how much money should they be saving? That answer has changed a lot over the years.

When the Social Security program launched in 1935 and set the retirement age at 65, conventional wisdom held that men wouldn't live past 58, and women, age 62. Today's 65-year-olds are expected to live until age 84, meaning workers have to work longer and save much more than previous generations.

The introduction of employer pensions, 401(k) plans, and other retirement plans, have helped many Americans. But unexpected events--recessions, job losses, health problems and the rising cost of living--can easily derail retirement goals. If it seems like saving for a comfortable retirement is more difficult, it's likely because the post-work stage of our lives is now longer than the retirement system anticipated.

Here's a timeline of how the American retirement system has evolved:


The first private pension plan is introduced. Several employers across the county from banks to railroads begin establishing retirement plans for their employees.


The Social Security Act is signed into law and sets 65 as the retirement age. At the time, life expectancy for men was 58 and women was 62.


Almost a century after the first pension plan was initiated, 41 percent of private-sector workers have a pension.


The personal savings rate, calculated as the ratio of savings to disposable income, reaches an all-time high of 17 percent.


Congress passes the Revenue Act of 1978, which accidentally gives birth to the 401(k) through a provision that keeps employees from being taxed on the money they put into a retirement account. Johnson & Johnson becomes one of the first companies to adopt a 401(k) plan.


As they near retirement, workers age 56 to 61 have saved an average of $58,585 in their 401(k), IRA, or Keogh plan. The average annual expenditure of people 65 and older is roughly $17,000, based on data from the Bureau of Labor Statistics.


One in three Americans expects to be able to retire at age 65, according to the Employee Benefit Research Institute.


Two-thirds of retirees rely on Social Security as their main source of income, followed by their pension plan and their personal savings.


Workers nearing retirement have saved an average of $155,371. The average annual expenditure of people 65 and older is more than $27,000. This suggests a growing retirement-savings shortfall as life expectancy increases.


Only 26 percent of Americans are optimistic about retiring at 65. About 6 percent believe they won't retire at all.


To encourage people to save more, companies can now automatically enroll employees in a 401(k) and set aside a portion of their wages into a retirement account. Contributions increase by 13 percent in the following years.


Forty percent of retirees rely on Social Security as their main source of income—23 percent less than a decade ago—while more depend on their personal savings.


The Great Recession disproportionately affects baby boomers' retirement plans, forcing them to dip into their savings. Thirty-two percent of older Americans saw their homes drop in value, and nearly a quarter of Americans over 50 exhausted all of their savings during the recession.


The personal savings rate climbs to 8.1 percent, the highest since 1993.


Workers nearing retirement have saved an average of $163,577. The average annual expenditure of people 65 and older is roughly $41,400—up by 41 percent from a decade earlier. The retirement-savings shortfall is increasing.


Most workers now expect they won't be able to retire until after they turn 70. About 10 percent believe they won't retire at all.


Workers are still hoping they'll be able to retire earlier, with goals varying by generation. Millennials want to be able retire at 60 years old, Gen X at 63, and baby boomers at 69, according to the Generational Money Talks study.

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