More than a third of the country’s workers have almost nothing saved for retirement, according to a new survey of workers and retirees, and most people aren’t even thinking about their nest eggs.
Roughly 36 percent of working-age survey respondents said they have less than $1,000 in savings and personal retirement investments, and 60 percent reported having less than $25,000 saved. The numbers are similar among retirees surveyed: 58 percent have less than $25,000 on hand, and 29 percent have less than $1,000 saved.
Just 44 percent of workers “say they or their spouses have tried to calculate how much money they’ll need to save by the time they retire so that they can live comfortably,” USA Today reports. Retirement experts generally say that workers need to save at least eight times the salary they earn in their final year of work in order to retire comfortably, and some argue that the figure is more like 20 times their income.
Working people may not be doing enough math about their financial futures, but they seem to have a sense that the classic vision of leisurely golden years is disintegrating before they’ll have a chance to partake. While just 27 percent of retirees surveyed say they continue to work, 65 percent of workers said they expect to work after retirement.
The Employee Benefit Research Institute survey focuses on cash savings and investment holdings and excludes home equity and pension payments. Home prices may yet rebound far enough to rescue retired homeowners from poverty. But for most working people, the relative financial security of a pension plan has been replaced with the uncertainty and high fees of the individual retirement investment account (IRA). From 1985 to the mid-2000s, more than 84,000 American companies ditched their traditional pensions. Today, if a company offers any retirement savings benefits at all to workers, they tend to come in the form of an IRA.
These plans, often dubbed 401(k)s after the section of the tax code that created them, do not require employers to contribute anything at all to their workers’ future finances. Instead, they allow workers to set aside part of their salary — sometimes with an employer matching payment, though those are not required — and then either act as investment managers themselves or pay high fees to professional advisers. Fees typically soak up a third of all investment gains over the course of a worker’s career.
The new reliance on 401(k)s over the past few decades has meant that retirement security depends more and more on the financial markets. The stock market had a great year in 2013, lifting the average 401(k) balance to record levels. But surveys like this one and older data suggesting that roughly half the working population has spiraling debts and nothing saved for retirement underscore just how dire the situation is for people nearing the end of their working years.
There is a $6.6 trillion gap between what working-age Americans ought to have set aside and what they have actually saved. That means tens of millions of working people are poised to see a major drop in their quality of life, potentially even falling into poverty as they age. Proposals to address this retirement crisis range from President Obama’s myRA system — a starter kit approach to getting people to begin planning for retirement — to modest changes to how the 401(k) system works to simply expanding Social Security so that retirees can be assured of a basic standard of life.