Don't count on personal savings for retirement
September 1, 2017
Are you feeling all smug and comfy about the level of your personal savings for retirement? OK, that was a rhetorical question. A report recently released by the National Institute on Retirement Security (NIRS) found that 75 percent of adult Americans are concerned about their ability to achieve a secure retirement. In addition, 86 percent believe that the nation faces a retirement crisis.
“It’s no wonder Americans believe the nation faces a retirement crisis – the evidence is irrefutable that the hope of retirement is out of reach for millions of the middle [income] Americans,” said Diane Oakley, executive director of the National Institute on Retirement Security.
“Two problems are at heart of the issue: lack of access to retirement plans -- particularly among low-income workers and families -- and low levels of retirement savings. These twin challenges amount to a severe retirement crisis that, if left unaddressed, will result in grave consequences for the U.S. economy and families.”
There are very good reasons for the national fretting about retirement security. For families headed by workers ages 30 to 61, participation in any retirement plan fell from 60 percent in 2001 to 53 percent in 2013. However, there has been an even steeper decline for workers with traditional pension plans which, unlike savings, provide a steady income regardless of how the economy is doing. Traditional pensions cover 18 percent of private-sector workers, down from 35 percent in the early 1990s.
The key findings of a recent report from the National Institute of Retirement Security, Retirement Savings Levels Continue to Worsen, provide additional details of this grim picture:
• Retirement account ownership rates are closely correlated with income and wealth. Nearly 40 million working-age households (45 percent) do not own any retirement account assets at all. Half of these households with no retirement savings are headed by someone between the ages of 45 and 65, and probably have too few years to catch up. Households that do own retirement accounts have more than 2.4 times the average annual income of households that do not own a retirement account.
• The average working household has virtually no retirement savings. When all households are included—not just households with retirement accounts -- the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households.
• Many seniors are still working. Earned income, including farm and business income, is the second most important income source for seniors after Social Security, providing 29 percent of total income. We are not slackers. The share of people 65 and older who are employed is now higher than in over half a century.
The problem is bigger than the saving behavior of individual families. In the United States real wages – after accounting for inflation – have been stagnant for decades. This, in addition to a minimal national commitment to retirement with dignity and security, has resulted in a high senior poverty rate. This is likely to get worse over time since many seniors today still receive traditional pensions in addition to Social Security.
Even though 82 percent of seniors age 65 and older receive Social Security benefits, these benefits are inadequate to make up for a lack of significant retirement savings. The annual retired worker benefit of almost $16,000 in 2014 was only moderately higher than the official poverty line of $11,400 for an elderly individual living alone. Seniors in the near future will be forced to rely increasingly on inadequate retirement savings accounts (if they have them at all) and on Social Security which is under political pressure to reduce benefits.
Finally, savings plans like 401(k)s are not delivering substantial income in retirement for those who need it the most. Women remain much more vulnerable in retirement due to lower lifetime earnings and longer life expectancies. African-Americans and Native Americans (American Indians) are more vulnerable due to lower lifetime earnings and shorter lifespans combined with scheduled increasing age for Social Security eligibility.
Retirement insecurity is a national problem than can effectively be addressed only at the highest levels of politics and policy. The solutions are within your grasp. Seek out legislators and organizations who will work with you to strengthen Social Security and preserve and expand traditional pensions.
Lawrence Weiss is a UAA Professor of Public Health, Emeritus, creator of the UAA Master of Public Health program and author of several books and numerous articles.