Many Americans Still Lack Retirement Savings
A Venn diagram overlay on our Aging of the Population and Rise & Fall of the Middle Class reveals a looming squeeze of the undersaved aging population. We’ve written quite a bit here about the low percentage of Americans that have socked away monies pre- and post-tax into retirement accounts and even emergency fund or “rainy day” accounts. Now the St. Louis Federal Reserve is parsing some of the latest data, and the findings confirm the looming pain point associated with the aging and living longer undersaved.
Generally speaking, Americans are undersaved in this consumer spending led economy, and we as a people are also living longer. Insufficient savings that need to be stretched over more years, and often with rising medical costs.
As baby boomers age, significant debate has emerged about whether there is a retirement crisis developing in the United States. Some argue that the retirement situation is poor for many Americans, with many approaching retirement age with little or no savings. However, others describe the situation as better than commonly thought, as many retirees report living comfortably.
Overall, our analysis indicates that many households either do not utilize or underutilize the retirement savings plans available to them.
A 2016 study by economist Monique Morrissey used Survey of Consumer Finances data to show that participation in defined-benefit and defined-contribution plans is quite low, and that many families have little or no retirement savings.
Our findings are generally in line with Morrissey’s. The most recent SCF data show that not all employers offer pension plans to their employees and not everyone who has access chooses to participate. Only 27 percent and 33 percent of households have defined-benefit and defined-contribution plans, respectively, at their current jobs; 8 percent of households have both.
In total, about 56 percent of households have an employer-sponsored pension plan associated with their current or previous employment.
One might think that households that do not have access to an ESPP are more likely to utilize an IRA or Keogh account as an alternative option. However, this is not what we see in the data.
- Roughly 30 percent of households have an IRA or Keogh account.
- Of households that do not have an ESPP, only 20 percent utilize any IRAs or Keogh accounts, while 38 percent of households that have an ESPP also have at least one IRA or Keogh account.
The data doesn’t lie or sugar coat the coming pain
Overall, 35 percent of U.S. households do not participate in any retirement savings plan. Even among those households that do hold retirement accounts, many of them have low account balances.
- The median (50th percentile) household of all ages (the red bar) holds only $1,100 in its retirement account.
- Even the 70th and 80th percentiles of households have only about $40,000 and $106,000 in their retirement accounts, respectively.
Source: Many Americans Still Lack Retirement Savings | St. Louis Fed
