We’ve discussed many times on this blog how the shift from defined benefit pensions to 401(k)-style defined contribution plans has decimated retirement security for a generation of working families. The true depths of the retirement savings crisis are quite alarming. The National Institute on Retirement Security (NIRS) recently issued an illuminating new report that finds that more than three-fourths of working Americans fall short of the most conservative retirement savings goals.
The new NIRS report examines data from the U.S. Census Bureau. Unlike previous research, including NIRS-issued reports, this report does not just examine workers who have retirement savings accounts. It looks more broadly at all working age Americans. Alarmingly, it found that 57 percent of working age individuals do not own any retirement account assets in an employer-sponsored 401(k)-type plan, individual account, or pension. For most of these individuals, they will be forced to rely exclusively on Social Security in retirement. While Social Security is a vital program that forms the foundation of retirement security for most Americans, it only replaces approximately 35 percent of pre-retirement income. Meanwhile, financial experts recommend that most workers aim to replace 85 percent of pre-retirement income. This leaves a gap of 50 percent that many workers struggle to fill.
A major challenge for many in saving for retirement is access to a plan through their employer. In 2014, only 51 percent of private sector workers had access to a retirement savings plan. This is a decline from the peak of 60.4 percent reached in 1999. Let’s pause and reflect on that for a second: at the height of the 1990s stock market boom, only three-fifths of working Americans had access to a retirement savings plan. Now, only half of Americans do. No wonder so few people have adequate retirement savings.
Financial planning experts recommend that working families have ten times their current annual income saved by retirement. Unfortunately, according to the NIRS report, 81.4 percent of workers have less than one year of annual income saved for retirement. This number includes those who have no retirement savings at all. Even using a more generous measure of net worth, rather than just savings in a retirement account, NIRS still finds that 45 percent of working Americans have less than one times their annual income saved. Unless these families significantly increase their savings, they will face a lower standard of living in retirement.
This new report from NIRS provides a great service to the debate over retirement security by revealing the true depths of the retirement savings crisis. Given this reality, it is all the more important that we protect sources of true retirement security, such as defined benefit pensions. If anti-pension ideologues like John Arnold, the Reason Foundation, and the Koch brothers get their way, these numbers will only get worse, which is hard to imagine.