A new research report finds that the retirement savings levels of working age Americans remain deeply inadequate despite economic recovery. An analysis of U.S. Census Bureau data reveals that the median retirement account balance among all working individuals is $0.00. The data also indicate that 57 percent (more than 100 million) of working age individuals do not own any retirement account assets in an employer-sponsored 401(k)-type plan, individual account or pension.
The analysis finds that overall, four out of five working Americans have less than one year’s income saved in retirement accounts. Also, 77 percent of Americans fall short of conservative retirement savings targets for their age based on working until age 67 even after counting an individual’s entire net worth – a generous measure of retirement savings. Moreover, a large majority of working Americans cannot meet even a substantially reduced savings target.
Growing income inequality widens the gap in retirement account ownership. Workers in the top income quartile are five times more likely to have retirement accounts than workers in the lowest income quartile. And those individuals with retirement accounts have, on average, more than three times the annual income of individuals who do not own retirement accounts.
These findings are contained in a new research report, Retirement in America | Out of Reach for Most Americans? The report is issued today by the National Institute on Retirement Security (NIRS) and is available here.
A webinar to review the findings is scheduled for Thursday, September 20, 2018, at 11 AM ET. Register here.
“The facts and data are clear. Retirement is in peril for most working-class Americans,” says Diane Oakley, report author and NIRS executive director. “When all working individuals are considered — not just the minority with retirement accounts—the typical working American has zero, zilch, nothing saved for retirement.”
Oakley added, “What this report means is that the American dream of a modest retirement after a lifetime of work now is a middle-class nightmare. Even among workers who have accumulated savings in retirement accounts, the typical worker had a low account balance of $40,000. This is far off-track from the savings levels Americans need if they hope to sustain their standard of living in retirement.”
The retirement savings shortfall can be attributed to a multitude of factors and a breakdown of the nation’s retirement infrastructure. There is a massive retirement plan coverage gap among American workers, fewer workers have stable and secure pensions, 401(k)-style defined contribution (DC) individual accounts provide less savings and protection, and jumps in the Social Security retirement age translate into lower retirement income.
The key findings of this report are as follows:
- Account ownership rates are closely correlated with income and wealth. More than 100 million working age individuals (57 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k)-type plan or an IRA nor are they covered by defined benefit (DB) pensions.
- The typical working age American has no retirement savings. When all working individuals are included—not just individuals with retirement accounts—the median retirement account balance is $0 among all working individuals. Even among workers who have accumulated savings in retirement accounts, the typical worker had a modest account balance of $40,000.
- Three-fourths (77 percent) of Americans fall short of conservative retirement savings targets for their age and income based on working until age 67 even after counting an individual’s entire net worth—a generous measure of retirement savings.
- Public policy can play a critical role in putting all Americans on a path toward a secure retirement by strengthening Social Security, expanding access to low-cost, high quality retirement plans, and helping low-income workers and families save.
To understand the challenges working-class individuals face in retirement, the report provides an analysis of the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) data released in 2016 and 2017. The study analyzes workplace retirement plan coverage, retirement account ownership, and retirement savings as a percentage of income, and estimates the share of workers that meet financial industry recommended benchmarks for retirement savings.