It is easy to find policymakers and thought leaders who deny we have a retirement crisis. But there’s no denying that the overwhelming majority of people face a sharp drop in income at retirement. The Economic Policy Institute, a Washington think tank, has a new report that highlights how middle-income families have lost significant assets since the Great Recession.
The EPI analysis shows that today fewer people have defined benefit pensions to rely on. And Social Security payments are not replacing as much of people’s working income as it once did. Moreover, 401k-style defined contribution plans and IRAs, are not growing nor anywhere near making up for these losses. They have “failed most American workers.”
Rather, EPI reveals that the households near retirement during the Great Recession took a significant financial hit. On average, they lost nearly a quarter of their savings. But, these losses hurt the wealthiest Americans far less than everyone else, contributing to greater retirement inequality. Median families (those in the 50th percentile) lost more than half of their retirement savings between 2007 and 2010. Families in the 90th percentile only lost 5 percent.
Other notable findings from EPI:
- Total wealth has shrunk for 80 percent of people over the last several decades. So, they do not have as much available to spend for retirement.
- Most people at the bottom half of the income distribution have no retirement savings; since 2000, fewer working age families have retirement savings except among top income earners.
- Single women are particularly vulnerable because they tend to earn less, have less savings and live longer than men, often outliving their savings.
- Half of near-retirees have no retirement savings at all and those with savings have median savings of $17,000. Before the recession, they had more than twice that amount, about $36,000.
- Retirees are also seeing cuts to Social Security benefits, which were passed in 1983 but are still taking effect in the form of a slowly rising retirement age, from 65-67.
And, because older adults and people with disabilities typically can count on Medicare to cover only about half of their health care costs, their expenses can be very high. Medicare does not cover nursing home care or other long-term services and supports.
What’s the solution? Here are three ways government can help promote retirement security. Expanding Social Security benefits would help a lot, particularly for people with low incomes and in poor health.Teresa Ghilarducci explains the value of Guaranteed Retirement Accounts here. People who are in good health and who can find work are best off if they continue working and put off collecting Social Security until age 70. Their benefits will increase substantially.