A recent study from The New School’s Schwartz Center for Economic Policy Analysis (SCEPA) argues that many Americans are nearing retirement without adequate savings to support their desired standard of living in old age. Specifically, the average total balance in all retirement accounts for U.S. families nearing retirement (head of household age 50-64) was only $150,185 in 2013 (most recent data available). What is worse is that more than a quarter (28.5 percent) of families in the United States near retirement had no long-term savings in place whatsoever. Household income clearly plays a role in America’s looming retirement crisis because nearly half (48 percent) of families in the United States with annual earnings under $60,000 were without an old-age savings plan in 2013. However, 9.8 percent of middle-income families (between $60,000- $187,000), and 5.2 percent of higher-earning families (over $187,000), were still found to have no retirement savings plan in place that year. Even if we only looked at near-retirement households with non-zero plan balances, the average amount of savings climbed to only $257,969.
Such figures, by even the most conservative measures, imply that many Americans near retirement will likely not have enough money saved away to maintain their pre-retirement lifestyle in old age. Just look at the 2014 Willis Towers Watson analysis which suggested that an “adequate” level of retirement savings can range from 8 to 20 times current annual income. Near-retirement households earned an average of $103,291 in 2013 (see above). Eight times that figure is more than 450 percent higher than the average balance families close to retirement had in their old-age savings plan that year. With such statistics, it should not be too surprising that lawmakers in Washington continue to pursue initiatives that would boost retirement saving in America. For example, a growing number of states are starting to mandate employer-provided retirement plan access, and Rep. Joe Crowley (D-N.Y.), Vice Chair of the House Democratic Caucus, announced last month plans to introduce his Universal Savings Account legislation that would require, at the federal level, employers with 10 or more workers to open individualized retirement accounts for every employee. Further, there are signs that lawmakers are moving closer to expanding access to multiple employer plans (MEPs), potentially good news for small businesses.
Sources: The New School (SCEPA), FRBG, Willis Towers Watson, NAPA, Think AdvisorPost author: Charles Couch