Building an Economy that Works for Everyone

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

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

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