NEW YORK (MainStreet)—The concept of life-after-work seems to be fading fast for Americans. New research indicates that the average working-age family has set aside a mere $3,000 for retirement. Two-thirds of working households between the ages of 55 and 64 with at least one earner have retirement savings less than one times their annual income, far below what they will need to maintain their standard of living in retirement.
"The Retirement Savings Crisis: Is it Worse Than We Think?", issued by the National Institute on Retirement Security (NIRS) says that because of this low level of savings, the U.S. retirement savings gap is between $6.8 and $14.0 trillion, with lower- and middle-income Americans most at-risk.
"We wanted to broadly examine how American households are faring in relation to retirement savings targets recommended by some financial services firms," said Nari Rhee, NIRS manager of research. "We used the Federal Reserve's Survey of Consumer Finances to analyze retirement plan participation, savings, and overall assets of all U.S. households age 25 to 64, not just those with retirement account assets. This is important because some 45%, or 38 million working-age households, do not have any retirement account assets."
Aon Hewitt and Fidelity Investments have estimated that to maintain the same standard of living in retirement, the average household needs to replace about 85% of pre-retirement income. The NIRS study shows a drastic short-fall for most Americans.
"Our findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many," Rhee added. "Based on 401(k)–type account and IRA balances alone, some 92% of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, 65% still fall short."
The researchers conclude that after two recessions and a prolonged economic recovery, a difficult retirement outlook has been made even worse. "Employers have dialed back on workplace retirement plans, while many households struggle to save as they cope with higher living expenses and stagnant wages," says Diane Oakley, NIRS executive director. "Left unaddressed, the twin challenges of low access and low savings likely will result in grave consequences. We can expect substantial increases in public assistance costs, and even greater demands on strained families and social service organizations to help older Americans who just can't make it on their own."
According to an NIRS public opinion survey, 75% of respondents now support a new universal pension system that offers portability, professional investment management, and a secure monthly income.
"The data is grim, but I want to be as optimistic as the kindergarten teacher who tells students they 'need improvement,'" Oakley adds. "Retirement policy can improve with reforms in three areas to help all Americans and encourage greater savings: 1) strengthen Social Security; 2) expand low- and middle-wage workers' access to retirement savings via payroll; and 3) expand the incentives of the existing Saver's Credit."
--Written by Hal M. Bundrick