Retirement is envisioned as a well-earned chapter of life, a time to savor after years of hard work. However, for countless Americans, a significant roadblock stands in their path–the retirement savings gap. As many retirees have come to realize, their expenses often surpass the savings they meticulously set aside.
Just how unprepared are most Americans? The answer is quite unsettling, with an estimated overall deficit of $3.68 trillion. While many folks managed to bolster their savings during the COVID-19 pandemic, the surge in inflation has chipped away at these gains. A Pew study released in May underscored the potential gravity of this retirement gap, projecting a heft cost of $1.3 trillion to state and federal governments over the next two decades. This projection takes into account the increased strain on public assistance resources and a decline in tax revenue.
According to ESI, the outlook remains bleak, with, 61% of elderly households projected to have an annual income below $75,000 in 2040. Among these at-risk households, many families will fall short by $7,050 a year in 2040. The gap is worse for some populations than others. An estimated 57 million workers do not have access to an employer-based retirement account.
Generation X is one group that is particularly impacted by the retirement savings gap. A recent report by the National Institue on Retirement Security titled The Forgotten Generation: Generation X Approaches Retirement shows a very troubling prognosis and notes that Generation X is the ”first generation to enter the labor market following the shift from defined benefit pension plans to 401(k)-style defined contribution accounts.”
The NIRS report evaluates median retirement savings levels and unveils a concerning truth: the bottom half of Generation X earners have only a few thousand dollars in retirement savings, while an average household has merely $40,000 in savings. The distribution of retirment savings for Generation X is heavily skewed toward the highest earners. A major contributing factor to their struggles is student loan debt; Gen Xers with student loan debt are more likely to fall short of their retirement savings goals.
Simultaneously, Blacks and Hispanics communities face more significant challenges, with fewer savings and less access to retirement plans than their white counterparts.
Moreover, older Black workers are the least likely among all racial and ethnic groups to have a retirement account, according to a July 2023 report from the U.S. Government Accountability Office. When Black workers do have a retirement account, their median balance is well below that of similarly aged white adults –across all income groups.
Despite these disheartening statistics, there is a glimmer of hope. New research indicates that public employees with access to defined benefit pensions fare better than their private sector counterparts. The groundbreaking ‘Closing the Gap’ report reveals that pension income is distributed relatively equitably among recipients, regardles of race. Furthermore, public pension income is distributed more equally across gender lines than other retirement offerings. Simply put, pensions play a pivotal role in reducing retiree poverty across race, sex, and educational divides.
Several states are proactively adressing the retirement savings gap by introducing state-specific retirement-savings programs targeting workers whose employers don’t offer a 401(k) plan or similar option. Some programs are up and running, while others are just getting underway.
Public service remains one surefire way to catch up on retirement savings. Most government agencies are desperate for new hires. Need to catch up and do more to establish a secure retirement for you and your family? Consider pursing a career in the public sector.
