Today’s post was written by NPPC’s Executive Director Bridget Early. 

Readers of Defined Benefit know that NPPC has been shining a light on the failings of the defined contribution 401(k). Since its inception in the 1980s as a retirement savings vehicle, research has shown that 401(k)s are the reason many working people are now woefully unprepared for their golden years and why most Americans think they may never retire. 

How did we get here? The 1978 Revenue Act brought us the 401(k), which was actually created by Congress by mistake. Driven by profit margins and the belief that “greed is good” by “Gordon Gekko” types in the 1980s, corporations saw a chance to reduce their liabilities and save a little money. Instead of accruing liability with their companies’ pension plans, they now could provide a match of retirement funds with the newly established 401(k) plans. With a pension, retired workers received a monthly benefit for the rest of their lives, which helped workers plan and retire with dignity. Billed as a way for workers to manage their own investments, 401(k)s lets workers choose how to invest and prepare for retirement. Unfortunately, many workers don’t know how to navigate the ups and downs of the stock market and are not experts. This leaves many workers completely unprepared for retirement. 

Let’s take a look at the numbers. Financial advisors agree that putting away large amounts of your paycheck toward your retirement is necessary. According to Fidelity Investments, by the age of 30, you should have 1x your salary saved. By the time you retire at age 67, you should have 10x your salary saved in order to retire with dignity. It seems like a lot, doesn’t it? That’s because it is. 

According to Nerd Wallet, Fidelity Investments has a median amount of $24,500 in 401(k) accounts nationwide. Here are the median savings broken down by age:

  • Ages 20-29: $4,300
  • Ages 30-39: $16,500
  • Ages 40-49: $36,000
  • Ages 50-59: $60,900
  • Ages 60-69: $62,000

Americans are not saving enough for retirement. With their median savings, 67-year-olds would be lucky to make it two years before running out of money and having to turn to the social safety net.

According to the National Institute on Retirement Security (NIRS), 57 percent of workers have nothing saved for retirement, which means 100 million Americans have nothing saved at all. This reality contributes to why 75 percent of workers believe America is facing a retirement crisis. 

As the country continues to see the impact of this crisis worsens over the next decade, we need real solutions that preserve and restore retirement security for all Americans.