It has become fashionable in some quarters to pooh-pooh the very idea of a "retirement crisis" facing millions of Americans. The skepticism tends to come from economists and pundits whose retirement security is not in doubt, thanks to handsome retirement plans and high-income jobs that enabled them to assemble healthy nest eggs. They're scarcely fazed by the discovery that some of their claims are based on arithmetic errors, as happened just last month.
Economist Monique Morrissey of the progressive Economic Policy Institute on Thursday delivered some hard evidence of the problems facing the average American retiree with release of her updated Economic Inequality Chartbook: 32 interactive graphs that show how the shift from defined benefit pensions to 401(k)'s "has failed the majority of workers." This shift, which relieves much of the burden and risk of saving for retirement from employers and places it on employees' shoulders, has increased wealth inequality for older workers and left them on average with meager resources, even as their periods of retirement grow longer.
Morrissey also shows how Social Security has become more important to the average worker over time, giving strength to the argument that this all-important program should be expanded and its funding spread over a larger proportion of the population. Under the existing payroll tax system, which covers only earned income up to an inflation-adjusted $118,500 (this year), higher-income wage-earners and those who collect income mostly from capital gains, dividends and other unearned income pay a lower rate.
We've selected six especially telling charts from Morrissey's collection.
1. Savings have plateaued. Mean, or average, retirement accounts for all households (dotted gray line) have stagnated since the recession. "Rather than stagnation, we should be seeing rising 401(k) and IRA account balances at all ages to offset declines in defined-benefit pension coverage and Social Security cuts," Morrissey says. EPI's research shows that the financial crisis was especially punishing for households nearing retirement (top green line): They've lost on average about 23% of their nest eggs and haven't had the opportunity to recover.
2. Many families don't have any retirement cushion. Even the figures above overstate the retirement resources of the average family, because they're skewed by large balances held by the wealthy. In truth, nearly half of all families have no retirement account savings at all; even for households in the 56-61 age range, with retirement as little as four years away, the median retirement account is only $17,000 (and only half what it was before the financial crisis).
3. Defined-contribution plans such as 401(k)'s are heavily skewed toward the wealthy. Participation in 401(k) plans is closely associated with income. Although about twice as many families have defined-contribution plans, such as 401(k) plans, as defined-benefit pensions, 68% of the richest fifth of households participate in a plan, compared with only 4% among the lowest-income fifth.
4. The imbalance in 401(k) participation is making income inequality much worse. As Morrissey observes, "the bottom 60% of working-age families receive 17% of total income but hold 7% of retirement account balances. Meanwhile, the top 20% receive 63% of income and hold 74% of retirement account balances."
5. The disaster of the Great Recession is not a memory for the average family, mostly because of the lingering effects of the housing crash. "Working-age families’ median wealth, or net worth, fell by almost half during the Great Recession and its immediate aftermath," Morrissey observes, "and stagnated between 2010 and 2013 despite rebounds in stock and housing prices. Declines in the net worth of older families since 2010 are especially worrisome since they have less opportunity to make up losses before retirement."
6. Social Security remains the bulwark of retirement for low- and middle-income seniors. The program remains the largest single source of income for seniors with household income of at least $30,000.
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