A new, grim estimate from the National Institute on Retirement Security
The median retirement account balance in a typical American working-age household dropped to $2,500 in 2014, down from $3,000 in the previous year, according to a study from the National Institute on Retirement Security.
The insitute said that, by its calculation, nearly 40 million households have no retirement savings. At the same time, the value of 401(k) retirement savings accounts and IRAs hit a record high of $11.3 trillion at the end of 2013.
The news is perhaps most dire for those closest to retirement: median retirement account balances for pre-retirees was $14,500, with 62 percent of Americans aged 55 to 64 having saved less than one year of their annual income, it said.
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While critics assert the insitute’s figures are based on dubious assumptions, Diane Oakley, executive director of the institute, said Thursday that time has run out for many Americans.
“This amount won’t even replace one year’s salary for millions of older Americans. They just don’t have time to catch up on their savings shortfall,” she said.
The evidence is “irrefutable” that retirement is out of reach for millions of Americans, she said.
Earlier this month, the NIRS released survey results showing 86 percent of Americans perceive a retirement crisis in the country.
The Employee Benefit Research Institute recently estimated that the country’s aggregate retirement savings deficit stands at $4.13 trillion.
The welter of discouraging data comes as the Special Senate Committee on Aging held a hearing Thursday titled, “Bridging the Gap: How prepared are Americans for Retirement?”
The overall problem can be blamed on two usual suspects, said Oakley: workers, particularly low-income ones, lack access to workplace retirement savings plans, and those with access are not saving enough.
“These twin challenges amount to a severe retirement crisis that if left unaddressed will result in grave consequences for the U.S. economy and families,” she said.
Sen. Claire McCaskill, the ranking member of the aging committee, opened Thursday’s hearings remarks recalling “an era when it was more common for workers to have a secure, guaranteed pension plan waiting for them in their retirement.”
“That is no longer the case,” she said. “We live in a 401(k) world, one that requires American workers make more financial decisions and assume more risk in deciding how much money to invest and where to invest it. Due to many challenges, many Americans have not been able to save the necessary funds for retirement. This retirement security crisis is very real.”
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The NIRS study examined rates of participation in defined contribution plans by age and wealth. Its findings included:
- Of the 55 percent of private-sector workers with access to any kind of retirement savings plan, only 51 percent utilize it. Access has slightly increased from post-recession figures but is still down from the 62 percent seen in 1998.
- Over 43 million people worked for an employer that didn’t sponsor a plan in 2013 – including 34 million full-time workers.
- Half of the 40 million American households that don’t own any retirement assets are between ages 45 and 65.
- As would be expected, retirement assets are strongly to correlated household income. On average, families with retirement accounts have 2.4 times the annual income than do those without retirement assets.
- Median income was over $86,000 for those with accounts, compared to $35,500 for those without accounts.
- Nearly 90 percent of earners in the highest quartile income bracket have retirement accounts, and nearly 76 percent of households in the second highest slot do. But in the lowest quartile of income earners, fewer than 22 percent hold assets in retirement accounts.
When factoring out households without retirement accounts from the equation, the average account value for all ages rises considerably, to about $50,000. For workers age 55 to 64, it is $104,000; for workers 45 to 54, it’s $87,000.
But even that level of savings cannot be expected to yield much retirement income, the institute said.
Savings of $104,000 will “only provide a few hundred dollars per month in income if the full account balance is annuitized,” or if it is drawn down at 4 percent a year, according to its report.
The report stipulates that most people lack a clear idea of how much savings they need to maintain their quality of life in retirement. A $200,000 account is less than half of the minimum a couple with a combined $60,000 in income will need, according to the paper.
To address the issue, the institute said, Social Security will have to be strengthened, access to plans with “life-time payouts” expanded, and increased tax credits given for savers in low-income families.
Legislative momentum for reform is expected to increase in this session of Congress.
McCaskill, for one, threw her support Thursday behind the Retirement Security Act of 2015, co-sponsored by Sen. Susan Collins, R-Maine, and Sen. Bill Nelson, D-Florida.
The bill would make it possible for small employers to join multiple-employer plans, a bipartisan solution that has been introduced in other retirement bills, McCaskill said.
Rep. John Larson, D-Connecticut, is expected to reintroduce the Social Security 2100 Act in coming days. Last year, the Social Security Administration’s chief actuary said Larson’s bill would leave the program with a small surplus 75 years from now.
Among other provisions, Larson’s bill would increase the payroll tax rate to 14.4 percent, compared to 12.4 percent under current law.
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