The findings are troubling:
- 100 million American workers lack any retirement savings
- That comes to 57% of American workers
- The median retirement account balance for all working-age people is $0
- 80% of American workers have less than one year’s income saved for retirement
- 77% of American workers don’t have enough retirement saved for their age target
- The average retirement account has just $40,000 in it
- American workers need to replace 85% of their pre-retirement income to maintain their standard of living
- Social Security currently replaces 35% of a worker’s pre-retirement income
- Somehow, workers need to come up with an additional 50% of their pre-retirement income if they want to ‘retire’
These numbers are especially troubling, as just a month before it was reported that only 21% of workers had nothing saved for retirement.
Now we know that the number is actually 57%.
This is a national crisis.
What does the crisis look like on the personal level?
In California, 76-year-old Roberta Gordon works every Sunday handing out samples at the grocery store for $50 a day “because she needs the money.”
Gordon earns $915 a month from Social Security, which makes it hard to pay her $1,040 a month rent.
“She’s been taking on credit-card debt to cover the gap, and to pay for utilities, food, and other essentials. She often goes to a church food bank for supplies.”
Another is 67-year-old woman Deborah Belleau. She works in a Palm Springs mobile-home park full-time, despite “aches and pains in her back and feet.”
Sometimes the pain is so bad she can’t walk when she wakes up, but she knows she can’t quit. “There’s no way I can live on $778 a month,” she says of her Social Security.
We often forget it, but each year women on Social Security receive $4,500 less than men do, on average.
There are tens of thousands of women in this country that are just like Gordon and Belleau…probably more.
After all, we know that just 3% of workers aged 65 or older were in the workforce in 2000.
Today 12.4% of seniors are working.
Healthcare is a big reason for this.
We know that “a woman in her 80s is paying on average $8,400 in out-of-pocket medical expenses each year, even if she’s covered by Medicare.”
There’s no way the average $1,372 a month in Social Security is going to cover that, especially when a lot of people are making a lot less than that.
What are the reasons for this crisis?
Here are a few:
- American retirement accounts went from $9.3 trillion in 2007 to $7.2 trillion in 2008
- The Great Recession resulted in fewer employers matching employee 401(k) contributions
- “Fewer workers have stable and secure pensions”
- “401(k)-style defined contribution (DC) individual accounts provide less savings”
- “Jumps in the Social Security retirement age translate into lower retirement income”
We know that American workers with retirement accounts typically have three times the annual income of those that don’t have such accounts.
Currently our retirement system has three main pillars:
- Social Security
- Employer-sponsored pensions or retirement-savings plans
- Individual savings
Perhaps the biggest cause of this crisis is how we changed our retirement system in the 1970s.
Beginning at that time, companies that used to provide pensions stopped doing so, giving that responsibility to their workers.
“Defined benefit plans” were replaced by “defined contribution plans.”
No longer would a worker get a set amount of money each year during their retirement. Instead, workers themselves would be responsible for putting that money away, not the company.
This proved hard, as now workers were tied into the markets and their ups and downs, and the amount they saved was also dependent upon their income level, as well as what interest rates were.
We know the results of this change: in 1979 we had 28% of our private-sector workers participating in a defined-benefit retirement plan, but by 2014 just 2% did.
Now it’s just defined-contribution plans: in 1979 we had 7% of workers in those, but in 2014 we had 34% in them.
And we’ve seen the results – most Americans no longer have the option to retire.
While it’s true that a lot of the blame needs to go to those workers and their inability to stop spending so they can save, we also have to point to the companies and the mindset that caused them to go from caring for their workforce to not caring.
Here in Montana things are especially bad.
When we take all the states plus the District of Columbia, we find that Montana comes in #49 when it comes to average retirement savings by state.
Our average savings is $168,755. Just Oklahoma and Wyoming have less saved for retirement than we do.
Delaware has the most retirement savings, mainly because of their tax structure, which doesn’t tax Social Security, property, inheritances, a large portion of retirement income or sales.
Seniors that need to house themselves run into serious problems.
We know that rents have gone up 26% in Montana since 1990, yet wages have only gone up 21% during that time.
Here in Missoula, rents have gone up 30% just since 2010.
This hits low-income people and seniors on Social Security the hardest.
It’d take a minimum-wage-earning family 73 hours of work a week to make the rent for a two-bedroom apartment in this state.
We know that low-income Montanans are paying 10% more of their income for rent than they were a decade ago.
In fact, for the lowest-income renters, 68% of them are spending more than 30% of their paychecks on rent, compared with the 9% of middle-income renters that do so.
And many of these folks are seniors who have nothing saved for retirement and whose Social Security income is quite low.
What are we going to do about this crisis?
I think the answer is very simple – nothing.
We’ll do nothing, hoping it doesn’t affect our daily lives.
We’ll ignore it and hope it goes away, or at the very least, that we at least don’t have to see it.
Or am I wrong on that?
Elkins, Kathleen. “1 in 3 Americans have less than $5,000 for retirement – here’s why so many people can’t save.” CNBC. 27 August 2018. https://www.cnbc.com/2018/08/27/1-in-3-americans-have-less-than-5000-dollars-saved-for-retirement.html
Erickson, David. “Montana’s poor more burdened by housing costs than others.” AP. 12 May 2018. https://www.apnews.com/2d1ef61f473549e082b075858225eaab
“New Report Finds Nation’s Retirement Crisis Persists Despite Economic Recovery.” National Institute on Retirement Security. 17 September 2018. https://www.nirsonline.org/2018/09/new-report-finds-nations-retirement-crisis-persists-despite-economic-recovery/
“Retirement Savings By State: Which Region Is Winning?” Financial Samurai. 22 October 2015. https://www.financialsamurai.com/retirement-savings-by-state-generation-and-more/
Semuels, Alana. “This is What Life Without Retirement Savings Looks Like.” The Atlantic. 22 February 2018. https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/