Workers Should Be Saving More Than Their Parents

The Center for American Progress contends millions of Americans are in danger of not having enough money to maintain their standard of living in retirement, and the problem is getting worse over time.

A report from the Center for American Progress (CAP) predicts the consequences of growing retirement savings shortfalls could be severe for both American families and the national economy, as a large share of households may be forced to significantly reduce consumption in retirement and will have to rely heavily on their families, charities, and the government for help to make ends meet.

CAP cites a household survey conducted by the Board of Governors of the Federal Reserve System, which found that as of 2013, approximately 31% of Americans reported having zero retirement savings and lacking a defined benefit (DB) pension. Among respondents ages 55 to 64, the share who reported having no savings or pension was still 19%, or approximately one out of every five near-retirement households.

The report notes that a significant number of Americans still lack access to the primary savings vehicles used today—workplace retirement plans. But, even among those who do have access to workplace retirement plans, those who save in them have failed to accumulate enough to be on track to meet their needs in retirement.

CAP says workers should be approaching retirement with greater wealth relative to their income than did previous generations. The data, however, show the opposite is occurring.

According to CAP, the Survey of Consumer Finances (SCF) shows that today, households across all age groups have wealth-to-income ratios that are effectively unchanged from or significantly below the ratios achieved by households in previous decades. Yet, retirement needs have grown significantly in recent decades.

CAP cites reports from Alicia H. Munnell of the Center for Retirement Research at Boston College, which point out life expectancy has increased and the retirement age for full Social Security benefits has risen to age 67, meaning workers now have more years of expenses to cover but must wait longer to begin receiving full Social Security benefits. Health care costs also have risen substantially, resulting in higher expenditures for retirees, and the decline in real interest rates since 1983 means that a given amount of wealth accumulated today now produces less retirement income than it would have in previous decades.

CAP looked at several assessments of the retirement readiness of Americans, from the most pessimistic to the most optimistic, and found they all show a large percentage of Americans are not building up sufficient assets needed to maintain their standard of living in retirement, and the problem is getting worse for younger generations.

The studies utilize different methodologies and arrive at different estimates of the exact percentage of Americans at risk of struggling financially in retirement, but even the most optimistic, which use prerecession data, still find that approximately one-quarter of retired Americans are falling short and that preparedness is growing worse over time. The most middle-of-the-road estimates available place the share of current American workers at risk at more than 50%, CAP said.

The CAP report is here.