Monday, September 17, 2018

"A new research report finds that the retirement savings levels of working age Americans remain deeply inadequate despite economic recovery"-National Institute on Retirement Security

WASHINGTON, D.C., SEPTEMBER 17, 2018 – 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 Social Security retirement age translate into lower retirement income.   

The catastrophic financial crisis of 2008 exposed the vulnerability of the DC-centered retirement system. Many Americans saw the value of their retirement plans plummet when the financial markets crashed and destroyed trillions of dollars of household wealth. Asset values in Americans’ retirement accounts fell from $9.3 trillion at the end of 2007 to $7.2 trillion at the end of 2008. The economic downturn also triggered a decline in total contributions to DC retirement accounts as many employers stopped matching employee contributions for a time pushing total contributions below 2008 levels. Since then, the combined value of 401(k)-type accounts and IRAs reached $16.9 trillion by the end of 2017. Unfortunately, this increase in total retirement account assets did not translate to improved retirement security for the majority of American workers and their families who have nothing saved.

In this uncertain environment, Americans face an ongoing quandary: how much income will they need to retire, and can they ever save enough? To maintain their standard of living in retirement, the typical working American needs to replace roughly 85 percent of pre-retirement income. Social Security, under the current benefit formula, provides a replacement rate of roughly 35 percent for a typical worker. This leaves a retirement income gap equal to 50 percent of pre-retirement earnings that must be filled through other means.

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. Individuals who do own retirement accounts have, on average, more than three times the annual income of individuals who do not own retirement accounts.

·         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. Furthermore, some 68 percent of individuals age 55 to 64 have retirement savings equal to less than one times their annual income, which is far below what they will need to maintain their standard of living over their expected years in retirement.

·         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. Due to a long-term trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of Americans cannot meet even a substantially reduced savings target.

·         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. Social Security, the primary underpinning of retirement income security, could be strengthened to stabilize system financing and enhance benefits for vulnerable populations. States across the nation are taking key steps to expand access to workplace retirement savings, with enrollment in state-based programs this year starting in Oregon, Washington and Illinois. Other proposals to expand coverage are on the national agenda but universal retirement plan coverage has not become a national priority. Finally, expanding the Saver’s Credit and making it refundable could help boost the retirement savings of lower-income families.

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.

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement including financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at

Contact: Kelly Kenneally 202.457.8190 o 202.256.1445 m


  1. A Defined-Contribution Savings Plan:

    A defined-contribution savings plan (401(k), 403(b), 457) was not initially created as a retirement vehicle but rather as a supplementary savings account.

    A defined-contribution savings plan shifts all the responsibilities and all of the risk from the employer to you; thus, your benefit is not guaranteed for life.

    Your benefit ceases when your account is exhausted. There are no survivor or disability benefits and guarantees.

    Your benefit is based upon individual investment earnings. You assume all funding, investment fees, and inflationary and longevity risks.

    A defined-contribution savings plan does not have the pooled investments, professional asset managers, and shared administrative costs that a defined-benefit pension plan provides.

    Though you bear no portability risks, accounts are not always rolled over when you change jobs. Changeover costs to this plan could be significant.

    Your employer (state) will have to bear the administrative costs of both defined-benefit pension and defined-contribution savings plans when you switch over.

    “Payments to amortize unfunded liabilities for the defined-benefit pension plan may be accelerated” (National Institute on Retirement Security (NIRS).

    The Governmental Accounting Standards Board “requires [an] acceleration of unfunded liability payments when the defined-benefit pension plan is closed to be recognized on financial statements” (NIRS).

    “No unfunded obligations [liabilities] for existing members are reduced when new members go into a defined-contribution savings plan” (NIRS).

    “The loss of new members makes it difficult to finance the unfunded obligations of the defined-benefit pension plan” (NIRS).

    The State will not save money. Most of the State’s obligation to the Teachers' Retirement System of Illinois, for instance, is for contributions not paid during the past several decades; therefore, the deferred cost of underfunding cannot be eliminated by switching to a defined-contribution savings plan.

    Shifting to a defined-contribution savings plan can raise annual costs by making it more difficult for a State to pay down existing liabilities. The plan will include fewer employees and fewer contributions going forward. Even with a defined-contribution savings plan option, states and localities are still left to deal with past underfunding.

    There is a several trillion dollar deficit between what 401(k) account holders should have and what they actually have.

  2. A Defined-Benefit Pension Plan:

    You cannot outlive your benefit.

    Your defined-benefit pension plan is more cost efficient than the defined-contribution savings plan.

    Your defined-benefit pension plan offers predictable, guaranteed monthly benefits for life.

    Funds are invested by professional asset managers in a diversified portfolio that follows long-term investment strategies. The large-pooled assets reduce asset management and miscellaneous fees.

    Your defined-benefit pension plan provides spousal (survivor) financial benefits.

    Your defined-benefit pension plan provides disability benefits.

    The State is responsible for funding, investment, inflationary and longevity risks.

    Because you are not affected by Market volatility, your defined-benefit pension plan is a more effective protection than the defined-contribution savings plan.

    Because teachers and other public employees understand the value of such a plan, they are willing to give up higher wages.

    A defined-benefit plan encourages a long-term career and stable workforce.

    Your defined-benefit pension plan provides you with self-sufficiency in retirement; it is associated with far fewer households that experience food privation, shelter adversity and health-care hardship.

    Your defined-benefit pension plan is less expensive for taxpayers than Social Security – a reason why legislators, et al. had negotiated for Illinois teachers to not pay into Social Security.

    Your defined-benefit pension plan has an economic impact of over $4 billion on Illinois; the effect on Gross Domestic Product is $2.38 billion; jobs that are created: 30,448 (Teachers Retirement System of Illinois, TRS).

    Defined-benefit pension plans contribute over $100 billion to annual local, state, and federal revenue in the U.S. and provide capital to financial markets (NIRS).

    Sources: the National Institute on Retirement Security (NIRS), Center for Retirement Research at Boston College, National Conference on Public Employee Retirement Systems, Center on Budget and Policy Priorities, and the Teachers Retirement System of Illinois (TRS)

  3. "...The truth is this: the concept of a do-it-yourself retirement (401(k)s) [is] a fraud. It [is] a fraud because to expect people to save up enough money to see themselves through a 20- or 30-year retirement [is] a dubious proposition in the best of circumstances. It [is] a fraud because it allow[s] hustlers in the financial sector to prey on ordinary people with little knowledge of sophisticated financial instruments and schemes.

    "And it [is] a fraud because the mainstream media, which increasingly relies on the advertising dollars of the personal finance industry, [sells] expensive lies to an unsuspecting public. When combined with stagnating salaries, rising expenses and a stock market that [does] not perform like Rumpelstiltskin and spin straw into gold, do-it-yourself retirement [is] all but guaranteed to lead future generations of Americans to a financially insecure old age. And so it [will]" (401 K's are a Sham).