NIRS: The Retirement Crisis Is Worse Than We Think

A new analysis shows 38.3 million working-age households (45%) do not have any retirement account assets.

During a webinar, Diane Oakley, executive director of the National Institute on Retirement Security (NIRS), said its previous research shows 85% of individuals are concerned about retirement, of which 55% are very concerned. “Individuals want to know ‘How am I doing?’,” she said.  

So, NIRS wanted to look at U.S. households and see if Americans are on track for retirement security. It did an analysis of the Survey of Consumer Finances (SCF) for 2010 to get savings rates, retirement plan participation, retirement account balances, and other information, and also used a universe of working-age households with head of households between ages 25 and 64. In addition, NIRS looked at a “near retirement” subset ages 55 to 64.  

The analysis found the estimated retirement savings gap for working-age households with at least one earner ranges from $14 trillion based on retirement account balances, down to $6.8 trillion based on net worth.  

Among near-retirement households, $12,000 is the median balance of combined savings in defined contribution (DC) plans and individual retirement accounts (IRAs). One-third have nothing saved, and another one-third saved less than 100% of their current income. However, the near-retirement subset is the last age cohort to have more coverage by defined benefit (DB) plans than DC plans.

Oakley noted that near the beginning of 2000, the retirement landscape reached a high of 61.9% of employees having access to an employer-sponsored retirement plan. “But since then, we’ve been through two recessions,” she pointed out. In 2010, 52% of employees have access to an employer-sponsored plan.  

Oakley also noted that nearly nine out of 10 households in the top income quartile have retirement accounts, compared to only one out of four households in the lowest income quartile.  

Nari Rhee, Ph.D., author of the NIRS report about its analysis and manager of research at NIRS, said the median balance for households with retirement accounts is $40,000 for working-age individuals and $100,000 for the near-retirement group. “That’s not enough for most households to generate enough retirement income,” she noted.  

NIRS used a universe limited to households with earnings between $5,000 and $500,000 in income, and applied conservative age-specific multipliers from Fidelity to annual income to set a benchmark for each household. It then compared four measures of household financial assets to benchmarks to identify those that fall short, and by how much.

The analysis found 92% of households do not meet the savings target for their age measured by retirement account balances, 90% do not meet the savings target measured by total retirement assets, 85% do not meet the target as measured by total financial assets, and 65% fall short as measured by net worth (defined as assets less debts, including mortgages).  

“These findings are stark. Clearly the retirement system is not working for most households, especially those at low end of income spectrum,” Rhee said.  

Families need to save more and many will work longer, but NIRS contends they cannot fill the gap alone; they need help from employers and policymakers. It says there is a need to strengthen Social Security, improve low- and middle-wage workers’ access to work-related retirement plans, and help low-wage workers save.  

The Institute advocates making retirement savings automatic for all as suggested in automatic IRA proposals, the USA Retirement Funds proposal (see “The Retirement Security Crisis and a Plan to Solve It”), and state-level action, such as the Select Choice program proposed in California (see “Calif. Senate Approves Government-Run Private Worker Retirement Plan”).  

The NIRS report about its analysis is here.