US retirement accounts are flush for millions of older Americans

The bull market in U.S. stocks has fattened retirement accounts for millions of older Americans, with many at the top of the income ladder having built up savings that far exceed their expected spending needs.

An analysis by Vanguard researchers on the retirement readiness of baby boomers found that the top 5% of income earners had a savings surplus of almost 30%. The retirement outlook improved for all but the bottom quartile of wage earners, though a savings gap still exists.

The improvement in retirement readiness is encouraging, Kelly Hahn, Vanguard Investment Strategy Group's head of retirement research, said in a blog post. "We see a meaningful improvement in retirement readiness for many baby boomers."

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Stock-market gains have helped bolster retirement savings for most — the gap between upper-income earners and those at the bottom has grown. Workers in the bottom quartile face a savings gap of 36% between their sustainable replacement rate and their expected spending needs.

"Because the market gains disproportionately benefited high earners with the most wealth and highest equity allocations, the disparity in retirement readiness between low- and high-income earners has widened," said Hahn.

For median income earners, the retirement savings gap narrowed eight percentage points to 25%.

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Vanguard's calculations are based on data from the Federal Reserve's 2019 and 2022 Survey of Consumer Expectations, and S&P 500 performance from the end of 2019 through 2022. That means retirement assets are even higher now.

A review of Federal Reserve data shows that the value of equity and mutual fund holdings among those at least 55 years old have climbed by $5.5 trillion in the past year and by almost $17 trillion since the start of the pandemic in the first quarter of 2020.

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While people at the top are seeing flush retirement accounts, the share of people who say they have zero confidence in a comfortable retirement reached a record high this month. Likely a reflection of the increase in the cost of living, the figure still highlights the vast differences among retirement savings.