Rosalind Evans
The alarming reality confronting numerous Americans is the impending retirement age without any financial cushion. Recent data shows a mere 10% of low-income workers aged between 51 and 64 had retirement savings in 2019. This is a sharp decline from 20% in 2007, prior to the economic turmoil of the Great Recession. This data, sourced from the U.S. Government Accountability Office (GAO), reveals that these workers typically earned around $19,000 annually.
It’s startling to note this decline in savings during a 12-year span that witnessed economic rejuvenation and significant stock market upticks post the Great Recession. Yet, while these lower-income individuals grappled with financial challenges, affluent Americans, boasting average yearly earnings of approximately $282,000, saw their median retirement savings nearly double to $605,000 in the same timeframe, as per the GAO.
Highlighting the growing disparity in retirement preparations, Teresa Ghilarducci, a renowned retirement scholar and economics professor at The New School for Social Research, mentioned that this trend isn’t just a recent phenomenon. Her ongoing research traces the retirement savings of older workers back to 1992, the era when 401(k) plans began overtaking traditional pension schemes. Ghilarducci lamented to CBS MoneyWatch that, since 1992, only the wealthiest 10% of older workers have seen retirement savings growth, while the remaining 90% witnessed negligible increases.
Ghilarducci expressed her concern over the GAO’s findings, stating, “It’s disheartening to realize that numerous individuals, on the cusp of retirement, have spent their working years under this evolving financial system.” She further highlighted the gradual decline in traditional pensions and Social Security benefits.
Owing to these patterns, Ghilarducci foresees a rise in seniors grappling with poverty. She pointed out that senior citizens already constitute the sole age demographic experiencing an uptick in poverty rates, based on the latest U.S. Census data.
Benefits Elude the Majority
A combination of escalating income disparity and a tax framework that predominantly favours the wealthy is rendering millions of lower-income Americans unprepared for retirement. Ghilarducci emphasizes that retirement savings stem primarily from earnings. With income growth disparities, there’s a corresponding gap in retirement savings.
Between 1970 and 2018, Pew Research Center data reveals a 64% income surge for the top earners, while middle and lower-income groups only witnessed 49% and 43% growth, respectively. Consequently, the affluent now commands almost half of the national income, a significant rise from 29% in 1970.
A majority of low-wage workers don’t have employer-backed retirement plans, and traditional pensions in the private sector are dwindling, with only 15% of private-sector workers availing of them.
The current tax structure is skewed in favour of high-earners, offering them substantial tax benefits for retirement savings, while their low-income counterparts are left without equivalent incentives. According to the GAO, the most affluent households receive approximately 60% of the tax advantages linked to retirement accounts. In stark contrast, the lowest earners receive a mere 5%.
Ghilarducci points out, “While high-income earners can avail tax savings up to $7,000 by maximizing their savings, those in the lower income bracket who save equally gain no tax relief.”
Middle-class Woes Intensify
The GAO’s findings indicate that the financial stability of middle-class Americans isn’t much better than their low-income counterparts. Between 2007 and 2019, the percentage of middle-income households with retirement accounts remained relatively steady at around 60%. However, their median account balance decreased from $86,800 in 2007 to $64,300 in 2019.
Senator Sheldon Whitehouse commented on the research, highlighting the vast chasm between the savings of the affluent and the average middle-class households. He stressed that the situation could worsen for those aged between 50 and 64, as Social Security’s reserves are projected to be exhausted by 2033. This could lead to a potential 25% reduction in Social Security disbursements, a blow especially hard for those without personal retirement savings.
GAO’s insights stress the imperative need for overhauling Social Security and revamping the retirement system to facilitate savings for more Americans.
Ghilarducci concluded, “Retirement has always been a precarious prospect for low-income individuals. What’s shocking is that governmental efforts and policy shifts over the past four decades haven’t improved the situation for middle-class workers.”
The future of retirement in America remains at a crossroads. As the gap between the wealthy and the less affluent continues to widen, the urgency to address systemic inequalities becomes paramount. It’s not just about securing a comfortable retirement for the current generation; it’s about building a robust, inclusive financial system that ensures every American, regardless of their income bracket, can age with dignity and security. Addressing this will require not just policy interventions but also a fundamental rethinking of how society values and supports its aging population.
