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National Institute on Retirement Security
With the Baby Boom generation beginning to retire, more emphasis has recently focused on Americans’ financial security in retirement. Most recent studies show that many Americans are ill-prepared for retirement, and that they are highly anxious about their ability to retire. The financial crisis of 2007-2008 was a huge setback for households. Since then, the combined value of 401(k) accounts and IRAs increased to a record high of $11.3 trillion at the end of 2013. Does this translate to improved retirement security for average American households? Unfortunately, the answer is no: the typical American household was further behind in retirement readiness in 2013 than in 2010 and 2007.
This report, an update of a previous NIRS report published in 2013,1 examines the readiness of working-age households, based primarily on an analysis of the 2013 Survey of Consumer Finances (SCF) from the U.S. Federal Reserve. The study analyzes workplace retirement plan coverage, retirement account ownership, and household retirement savings as a percentage of income, and estimates the share of working families that meet financial industry recommended benchmarks for retirement savings.
The key findings of this report are as follows:
- Account ownership rates are closely correlated with income and wealth. Nearly 40 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. Households that do own retirement accounts have more than 2.4 times the annual income of households that do not own a retirement account.
- The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households. Furthermore, 62 percent of working households age 55-64 have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
- Even after counting households’ entire net worth—a generous measure of retirement savings—two-thirds (66 percent) of working families fall short of conservative retirement savings targets for their age and income based on working until age 67. Due to a long-term trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of working households cannot meet even a substantially reduced savings target.
- Public policy can play a critical role in putting all Americans on a path toward a secure retirement by strengthening Social Security, expanding access to low-cost, high quality retirement plans, and helping low-income workers and families save. Social Security, the primary edifice of retirement income security, could be strengthened to stabilize system financing and enhance benefits for vulnerable populations. Access to workplace retirement plans could be expanded by making it easier for private employers to sponsor DB pensions, while national and state level proposals aim to ensure universal retirement plan coverage. Finally, expanding the Saver’s Credit and making it refundable could help boost the retirement savings of lower-income families.