Retirement is one of the most costly expenses some Americans will face in a lifetime. However, it is also an expense that few Americans are prepared for. Today, NPPC would like to reshare a blog on how saving for retirement is so difficult. Updated information is italicized. 

Did you know that, according to the National Institute on Retirement Security (NIRS), 57 percent of workers have nothing saved for retirement?

It’s troubling that a majority of Americans are caught in a retirement savings crisis. Here are three reasons why many face difficulty in saving for retirement. 

  1. Many employers don’t offer their employees a retirement plan. For those that do, 401(k)s are more commonly offered than defined-benefit pensions. 

According to NIRS, less than half of all workers in the U.S. have access to a retirement plan through their employer. Other research shows that having a retirement plan through work is one of the main ways workers can boost their retirement savings. According to AARP, American workers are 15 times more likely to save for retirement if they have access to a retirement plan through their employer. The widespread lack of employer-sponsored retirement plans creates a real hindrance for most workers to save for retirement. 

For the employers that still sponsor a retirement plan, the vast majority have shifted from providing defined-benefit pensions to riskier, less secure defined-contribution plans like 401(k)s. As late as 1980, almost half of all private-sector employees had an employer-sponsored pension plan. By 2020, however, the use of 401(k)s skyrocketed, with 60 million Americans participating in one. 

These plans, which were never intended to be the main retirement savings vehicle for most workers, have decimated workers’ retirement security. The median amount in Fidelity Investments’ 401(k) accounts, for example, is $24,500. This amount is not nearly enough for a secure and dignified retirement.

  1. The cost of living has increased without a subsequent increase in wages, making it more challenging to save for retirement. 

According to Yahoo Finance, consumer prices have increased by 2 percent or more annually since the early 1970s. In that same time period, however, hourly inflation-adjusted wages have barely budged, increasing by just 0.2 percent per year. It is more challenging for workers to save for retirement now, considering they have to set aside bigger chunks of their paychecks to afford everyday necessities like healthcare, groceries, housing, and transportation. According to Market Watch, the Consumer Price Index hit a 40-year high of 8.5% this March.

  1. More older Americans have debt than before. 

Increasing levels of debt are also threatening the ability of many older workers to save for retirement. According to NIRS, as of 2016, 46 percent of older Americans still had mortgage debt. This is an increase from 24 percent three decades ago. 

A report in 2019 showed that more than six out of ten seniors are working into retirement for financial reasons. Of that number, 19 percent said they were still in the workforce in order to pay off debt. It’s clear that paying off debt is another key reason why saving for retirement is difficult. 

Most public employees, fortunately, still have access to a defined-benefit pension. Defined-benefit pensions offer numerous advantages for both public employers and employees. As we’ve written before, pensions “help employers recruit and retain employees, offer a way for employees to retire at a cheaper cost than 401(k)s, and collectively pool risk among their members, meaning they do not place all of the investment risks for retirement on individuals like 401(k)s do.” 

It’s critical that policymakers protect pensions so public employees can retire with security and dignity.