The Economic Policy Institute is reporting a most unsurprising fact: most Americans are screwed when it comes to retirement savings, and some of that is due to our shift away from traditional pension plans. As CNBC points out—with traditional business media’s tone-deaf-adeptness—it’s a have and have not situation.
According to a report from the Economic Policy Institute (EPI), the mean retirement savings of a family between 44 and 49 years old is $81,347.
But that number doesn't tell the whole story. Since so many families have zero savings and since super-savers can pull up the average, the median savings, or those at the 50th percentile, may be a better gauge. The median for families between 44 and 49 is only $6,200.
CNBC goes on to explain that in order to reach these retirement savings goals one should invest 10 percent of their earnings into their company’s 401(k) and then diversify in other investments like a Roth IRA. As the report they are talking about explains:
In theory, the shift from defined-benefit to defined-contribution plans could have broadened access to retirement benefits by making it easier and cheaper for employers to offer benefits. However, participation in all employer-based retirement plans has declined in the new millennium (Figure 2). Retirement inequality has grown because most 401(k) participants are required to contribute to these plans in order to participate, whereas workers are automatically enrolled in traditional pensions and, in the private sector, are not required to contribute to these plans. Thus, higher-income workers (with their greater capacity to make contributions) are more likely to participate in defined-contribution plans.
In addition to their greater disposable income, higher-income workers have a higher investment-risk tolerance, receive larger tax breaks for saving, and are more likely to work for employers that offer plans and provide generous matches (CBO 2013; Morrissey 2009). 401(k) and IRA contribution limits, a Saver’s Credit targeted at low- and moderate-income families, and other attempts to ensure that tax subsidies for retirement do not disproportionately flow to high-income families have proven ineffective at leveling the playing field.
The good news is that the Great Recession—brought on by the same kinds of policies our present Republican administration is championing—has led to the rise in retirement savings for people already making lots of money! Woo hoo! One last note.
Social Security is the most important and evenly distributed source of retirement income. Social Security contributes 35 percent of total income for people age 65 and older (see “Sources of income,” below, for a description of this and other income categories). Social Security benefits are not only the most important income source but also the most evenly distributed. While benefits are somewhat smaller in dollar terms for low-income, less-educated, black, Hispanic, and female seniors, they are larger as a share of income for these groups than for other seniors (Figures 22–28).
Don’t worry, you economically distressed conservatives! The Republicans want to get rid of Social Security as well. Maybe they’ll replace it with a Trump cat food for seniors line that taxpayers can subsidize?