Retirement Preparedness Among Working-Age Americans
A new report from the National Institute on Retirement Security (NIRS) examines how American workers across demographic groups are preparing for retirement, finding that the typical working American has less than $1,000 saved for retirement. The study also looks at how rising costs and competing financial pressures are undermining the long-term economic security of American workers, and finds that although Social Security’s nearly universal coverage forms a solid foundation, its replacement rates drop off quickly and many middle- and upper-income workers will need additional sources of income in retirement — meaning that certain categories of workers, such as those with lower levels of education or lower incomes, are especially likely to be left out and, therefore, fall behind in saving for retirement. While recent legislative efforts have made incremental improvements to the retirement system, the report concludes, it also notes that major challenges remain, including the lack of access to retirement savings systems and ongoing uncertainty around the future of Social Security.
At the outset, the report underscores that it does not primarily focus on older adults and retirees. Instead, its focus is on working adults — ages 21-64, the majority of whom are not yet retired but who are saving and preparing for retirement — looking at what challenges they face to retire securely. The report also explores how the current retirement savings system is helping them – or not – to prepare for retirement, and it analyzes how other financial considerations, such as home ownership or student loan debt, intersect with saving for retirement. Finally, the new NIRS report determines how all of these factors vary across demographic groups, defined by gender, race, age, education, or income.
Dan Doonan, NIRS executive director, said that “[a]t a time when Americans are facing a growing affordability crisis, we need to recognize that retirement should be part of that conversation.” He went on to say that most retirement programs today “rely on workers saving voluntarily, with the tension between saving and the cost of buying a home, daycare, and college creating enormous challenges for the middle class.”
“This research shows the fragility of both the nation’s retirement infrastructure and retirement preparedness for the typical U.S. household,” Doonan stressed, pointing out that the data indicate that among 55 – 64 year-olds, the median amount saved for retirement is only $30,000. Even among those with savings, their balances “often are far too low to support a secure retirement,” he warns.
“Today, too many households are forced to choose between paying their bills and saving for tomorrow. Strengthening access to reliable retirement plans is essential if we want Americans to retire with dignity rather than anxiety,” Doonan emphasized.
NIRS says the report highlights several troubling trends in retirement preparedness among working-age Americans. These include:
- Access gaps persist. Many working Americans still lack access to employer-provided retirement plans. Public sector workers are more likely to have plan sponsorship and participation as compared to private sector workers. Hispanic workers and those with lower incomes or lower levels of education are significantly less likely to have access or participate. NIRS stresses that“working Americans have struggled to save adequately for retirement largely because they are not offered any retirement savings plan at work.”
- Social Security remains essential, but it is insufficient alone. Social Security accounts for roughly half of income for the typical older adult. Income from retirement plans – both defined benefit (DB) and defined contribution (DC) – represents about one-fifth of income on average.
- Savings levels are low. Among workers with positive DC savings, median balances were $40,000 in December 2022. Across all workers, including those with no savings, the median amount saved was just $955.
- Contribution rates are modest. Typical employee contribution rates to DC plans range from five to six percent, while typical employer contributions are just under three percent. Generally, employee contribution rates increase with educational attainment, income, and age, NIRS’ analysis found. Also, contribution rates vary more among different demographic cohorts. For example, NIRS finds men and women have similar employee and employer contribution rates, although men contribute slightly more than women. Contribution rates differ more by race and ethnicity, with Asian Americans having the highest median employee contribution rate at 6.7 percent. NIRS finds Black and Hispanic workers contribute 4.4 percent, and they also have lower employer contribution rates, 2 percent and 2.2 percent respectively, as compared to white or Asian American workers.
- Retirement savings trail other assets. Retirement savings account for about one-quarter of financial assets on average for working adults, while home equity represents about one-third. For some workers, the median value of a vehicle exceeds their retirement savings.
- Student debt complicates saving. NIRS says the presence of student loan debt is “a double-edged sword.” Median earnings for a working adult with student loan debt were slightly higher than for a working adult with no student loan debt, but average earnings were slightly lower. Those with student loan debt were more likely to have a plan at work and be participating in it and less likely to have a zero-balance account, but their account balances tended to be far lower, both at the median and on average. “Attending college and accruing student loan debt seems to be helping many to find jobs with decent pay and benefits, but it is also dragging down their net worth and likely reducing the amount they would otherwise be saving for retirement,” NIRS also found.
The new NIRS study is authored by Tyler Bond, NIRS research director, and Dr. Joelle Saad-Lessler, Stevens Institute of Technology School of Business Associate Dean of Undergraduate Studies. The authors utilized data from the public-use version of the U.S. Census Bureau Survey of Income and Program Participation (SIPP), and the analysis is based on the 2023 SIPP panel, with December 2022 as the reference month. [SIPP is a nationally representative longitudinal survey, meaning it interviews individuals for several years and provides monthly data about changes in household and family composition and economic circumstances over time. It provides comprehensive information on the dynamics of income, employment, household composition, and government program participation. SIPP is also a leading source of data on economic well-being, family dynamics, education, wealth, health insurance, child care, and food security.]
The National Institute on Retirement Security is a nonprofit, nonpartisan organization established to contribute to informed policymaking by fostering an understanding of the value of retirement security to employees, employers, and the economy as a whole. Located in Washington, D.C., NIRS membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers.
NCTR is proud to be one of the founding members of NIRS and is committed to the overall goal of retirement with dignity rather than anxiety for America’s educators.