“The State of American Retirement,”
a paper from the Economic Policy Institute, looks at the retirement prospects
of working-age families, focusing especially on retirement account savings.
According to Monique Morrissey, an
economist with the Institute, retirement wealth has grown nearly twice as fast
as income since 1989, an initially encouraging picture. In 2013, the author examined increasingly inadequate savings and retirement income.
Aggregate retirement wealth (assets
in pension funds plus savings in retirement accounts) nearly doubled as a share
of personal disposable income between 1989 and 2014, even as rising inequality
worsened retirement insecurity for most families, Morrissey says.
A more finely shaded look shows
that retirement account savings have exceeded defined benefit (DB) assets since
2012, as well as briefly in the late 1990s and mid-2000s. The rise of
retirement accounts for individuals is significant since these account assets
are more affected by economic downturns than pooled pensions. Contributions are
voluntary, and funds may be withdrawn in hard times. In addition, individual
retirement account investments are less diversified and investment returns more
That shift away from traditional
pensions has widened retirement gaps, Morrissey contends, and disparities in retirement savings
balances have increased. High income, white, college-educated and married workers participate in DB plans at a higher rate than other
workers. Participation gaps are much larger under defined contribution (DC)
Economic downturns increasingly
have a negative impact on workers’ retirement prospects, according to Morrissey’s
findings. Much of the 401(k) era coincided with rising stock and housing prices
that propped up family wealth measures even as the savings rate declined. This economic
situation reversed in 2000 and 2001, when the tech stock bubble burst, and again in
2007 to 2009, with the financial crisis.
How the financial crisis affected retirement savings