A startling new report issued by the non-profit National Institute on Retirement Security found that despite the "recovery" of the last decade leading to all time highs in the stock market, the savings levels of Americans who seek to retire are "deeply inadequate". In fact, the median retirement account balance among working individuals was found to be $0.
The report notes that retirement savings have been, and will likely be, correlated closely with income and wealth. The study found that individuals with retirement accounts generally have more than three times the income than those without accounts.
The report found that more than 100 million Americans that are of working age don’t have any retirement account assets in an employer sponsored 401(k) type plan, individual account, or pension, at all.
To make matters worse, 4 out of 5 working Americans were also found to have less than one year's income in their retirement accounts. Even those that are trying to save for retirement are failing to do so effectively, according to the study. It’s stated that 77% of Americans come up short of even the most conservative retirement savings targets for their age, based on estimates that have them working until age 67.
The analysis also found that "a large majority of working Americans" can’t meet a substantially reduced savings target.
Diane Oakley, who authored the report, stated: “The facts and data are clear. Retirement is in peril for most working-class Americans. When all working individuals are considered — not just the minority with retirement accounts—the typical working American has zero, zilch, nothing saved for retirement.”
She continued, "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."
Additional findings of the report:
- 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.
The report found that the gap in retirement account ownership has been widened by growing income inequality, which is being fueled our monetary policy, which brutalizes the middle and lower class while rewarding major institutions and the wealthy.
The report's 'warm and fuzzy' conclusion? We are in a "retirement crisis" that may have "grave consequences", including increased demand for public assistance:
The heart of the issue consists of two problems: lack of access to retirement plans in and out of the workplace—particularly among young and low-income workers and families—and low retirement savings even among those who are saving. These twin challenges amount to a severe retirement crisis that, if unaddressed, will result in grave consequences for the U.S. In the coming decades, the continued decline in the share of older workers receiving DB pension income—a factor linked to reduced reliance on public programs—combined with inadequate retirement savings, is likely to generate increasing demand for public assistance, which potentially could strain government budgets at all levels. An increasingly dependent elder population will likely place increased strain on families and social service organizations. The “American Dream” of retiring after a lifetime of work will be long delayed, if not impossible, for many.
Meanwhile, despite having virtually no money saved up, millennials still want to retire early, as we reported in late July. The data presented then showed that "younger Americans are hoping to retire in their early 60s" and that for millennials, "61 is the ideal retirement age."
This is especially surprising given that as we've discussed time and time again, America's millennial generation is burdened by debt, effectively precluded from home ownership and increasingly disgruntled and pessimistic about their future prospects forwealth and happiness. But perhaps they are also a bit delusional or at least less than realistic at times, especially on the topic of personal finances and the future.
Add to this that it's no secret that people are living longer and many are staying in the workforce long past the traditional retirement age of 65, but it appears there's a vast disconnect between millennials' goals and their preparations to reach those goals.