America’s retirement crisis: growing older and poorer

By: Charlene Crowell

As more Baby Boomers continue to retire, a new research report has found that the nation is facing a trillion dollar retirement savings crisis. According to the National Institute on Retirement Security (NIRS), 38 million Americans – 45 percent of working age households – have no retirement account assets at all. Among all working households, 92 percent do not meet conservative retirement savings targets for their age and income. As a result, the collective retirement savings gap among working households ages 25-64 ranges from $6.8 to $14 trillion, depending upon the financial measure used. NIRS analyzed the readiness of all working-age households using data from the U.S. Federal Reserve.

“The heart of the issue consists of two problems: lack of access to retirement plans in and out of the workplace –particularly among low-income workers and families –and low retirement savings”, states the report. “These twin challenges amount to a severe retirement crisis that, if unaddressed, will result in grave consequences.”

Financial experts recommend that retirement assets be the equivalent of 8-11 times annual income to preserve a standard of living. Many experts also recommend retirement fund contribution rates ranging from 10-15 percent to eventually reach adequate retirement funds.

But what if there is no retirement plan or option for workers?

In 2011, according to the report, 44.5 million people worked for an employer that did not sponsor a retirement plan. Even among full-time employees, 35.2 million had no access to a retirement plan. Low-wage industries, regardless of size, were found to be the least likely to offer a retirement plan.

Today the average working household has virtually no retirement savings. The median retirement balance for all working-age households is $3,000 and only $12,000 for those nearing retirement.

The shortage of available funds for retirement adds yet another complex dimension to the hope for a full financial recovery. In the aftermath of the worst financial crisis since the 1930s Great Depression, communities of color face financial challenges worsened by disproportionate unemployment, foreclosure-blighted neighborhoods and in many instances, lower incomes and markedly less wealth than the general population.

While some might assume that America’s workers make poor financial decisions, earlier research by the Center for Responsible Lending determined that the typical household has just $100 left each month after paying for basic expenses and debt payments. After controlling for inflation, the typical household had less annual income at the end of 2010 than it did at the beginning of the decade, 2000. Households headed by persons aged 55-65 saw the largest losses in wealth. People at or nearing retirement lost an average of $90,000 from 2007-2010.

Additionally, CRL found that income declines in communities of color are higher in part due to declines in over-representation in two types of employment that historically provided stable and secure jobs: manufacturing and construction. These two industries respectively suffered job losses of 10 and 20 percent. African-Americans who formerly worked manufacturing and construction jobs lost more than twice the number of jobs between 2007 and 2011 than they previously gained in the pre-recession decade.

The new NIRS report offered three specific actions to remedy the retirement crisis:

1. Strengthen Social Security, the primary source of retirement income for low and middle-income Americans;

2. Expand low and middle-wage workers’ access to high-quality, low-cost retirement plans with professional investment management and risk pooling; and

3. Expand eligible income limits and credit rates for the federal Saver’s Credit that reduces income tax liability by 10-15 percent on the first $2,000 in contributions to a qualified retirement account.

Without long-term solutions to the retirement crisis, NIRS concludes, “An increasingly dependent elder population will likely place increased strain on families and social service organizations. . . .American workers, employers, and policymakers need to look closely at what we need to do individually and collectively, so that everyone can build sufficient assets to have adequate and secure income after a lifetime of work.”