Why aren’t people saving for retirement? Because they can’t.

February 27, 2013 | Economic Opportunity Institute

This chart shows the share of working households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. EBRI

This chart shows the share of working households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement.

A generation ago, just one-third of working Americans weren’t able to save enough for their future retirement. Today more than half of American workers over 30 are on track to be unprepared for retirement, and more reliant on family members and direct social support in the future.

Things aren’t looking too dapper for soon-to-be retirees, either. People aged 55 to 64 have a median retirement account balance of $120,000. That equates to monthly payments of $575 – far short of what most retirees need, even including Social Security benefits.

How did we get here? Well for one thing, American companies have largely stopped providing pension plans. The 401(k) plans offered in their place have proven to be vulnerable to short-term economic swings – not to mention the Wall Street fees that take a big bite out of potential savings. And finally, growing numbers of people have no workplace retirement plan at all.

Pension plans provide a stable retirement income for retired workers in two ways: 1) by spreading the risk of an economic downturn broadly among multiple generations of workers and retirees, and 2) by utilizing professional fund managers to ensure a diversified stream of investment income. 401(k) plans have proven to perform more poorly than pensions because they concentrate risk in individual employees, and often put employees themselves in charge of making difficult or complex investment decisions.

So why haven’t more of our elected representatives taken steps to protect the pensions that do exist – much less encourage the creation of better retirement plans for workers? Well, they have – but not for people in the middle to bottom of the income ladder, according to The Washington Post:

Recent policy changes aimed at bolstering Americans’ retirement prospects have only contributed to the growing inequality. The government grants at least $80 billion a year in tax breaks to encourage retirement savings in 401(k)-type accounts. But the biggest benefits go to upper-income people who can afford to put aside the most for retirement, allowing them to reap the biggest tax breaks.

retirement plan participationThere is no substitute for the financial security offered by a program such as Social Security – which is why 84% of Americans say they support a nationwide pension plan to cover all workers. It’s also important to make sure all workplaces offer a simple, easy-to-use retirement savings plan for the people working there.

The Economic Opportunity Institute has been working closely with the Seattle City Council and the Mayor’s office to find creative ways to expand people’s access to retirement accounts. The Retirement Security Accounts for Seattle plan would empower Seattle to conduct outreach and increase ease for employers of all sizes to offer a low-cost, no-hassle retirement plan for their employees.

While the financial system – and certainly Wall Street – has seemingly stabilized since the crash and ensuing Great Recession, the big elephant in the room is a looming retirement crisis for American workers. Working together, we can ensure all Americans have access to a retirement plan at their place of work.

By EOI Intern Bill Dow

Tagged with: , , , ,
Posted in A Fair Deal at Work, Retirement Security, Retirement Security Accounts


  1. Henry Noble says:

    Thanks so much for this. Yesterday I attended the House Ways and Means Committee hearing and heard a guy from a banking organization talk against good pensions and say just that: working people need to save more and stop looking to their employers. Puke.

  2. Kate Martin says:

    I don’t see pensions coming back, especially given what employers are shelling out for employee healthcare benefits. I think that along with healthcare expenses, retirement savings are something that workers need to budget and provide for themselves. A good rule of thumb would be to sock away at least as much as you pay for your families cell phones and cable TV if not also the monthly restaurant bill. Also, portability is key. The average job for young people today lasts 4 years. Many much less. Very few jobs are for a lifetime. You need to be able to move from employer to employer and have plug and play rollover of accounts. When government jobs get with the New Normal as far as healthcare and retirement benefits, there will not be nearly as many lifers there either. Employer matches are great. Figuring a way as a nation to up our contribution to social security would be a good idea as well and perhaps delete the ceiling on those contributions. There’s nothing wrong, per se, with 401Ks or Roth IRAs or any of the retirement savings mechanisms. It’s just that putting large amounts of your retirement savings in the stock market makes little sense unless you’re pretty youthful and even then it’s never been the tried and true way that folks socked away for retirement. Conservative investments over long periods of time. It takes discipline and personal responsibility. People figure out what kind of car to drive, what kind of house to buy, what kind of person to marry, how many kids to have… They certainly are capable, in my opinion, of doing a little homework on investment basics.

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