Setting aside enough of the surplus to support workers who have retired is one of the basic tasks any society faces.
Clearly, the United States is failing at that one simple task.
Yes, Americans do have Social Security. But, at an average monthly payment of $1,360 in 2017, it’s obviously not enough.
That’s why American workers are forced to have the freedom to come up with their own savings for retirement. And most are finding it difficult, if not impossible.
Overall, only one-third of American workers are saving anything in a workplace retirement account.
One reason is because, according to a recent study, only 2 out of 5 employees with access to 401(k)s and other defined-contribution retirement saving plans are actually using them. They simply aren’t being paid enough to buy what they need for themselves and their families and, at the same time, to put away money for retirement.
It’s no coincidence that the Census analysis found Americans with higher incomes were more likely to be socking money away for their old age. That dovetails with other data, such as the Federal Reserve’s annual survey on household finances, which found that almost 9 out of 10 Americans with more than $100,000 in annual income have a 401(k), compared with just four out of 10 earning less than $40,000.
The other reason is only 14 percent of companies actually offer these types of retirement plans, far lower than previous estimates.
The low percentage of employers that offer 401(k)s was especially noteworthy, [retirement specialist Arielle] O’Shea said, since previous estimates pegged the number at about 40 percent. “That is a significant problem,” she said.
Yes, indeed, that is a problem. Fourteen percent instead of 40 percent.*
The combined effect is that two-thirds of American workers are simply unable to save enough to fund their own retirements. They will have spent most of their lives working—and then they will struggle to stop working and enjoy their retirement.
Contrary to the advice of countless retirement specialists and politicians, who exhort American workers to tighten their belts and increase their savings, they’re not the ones who have failed. It’s a system that keeps workers’ pay in check and yet relies on their finding a way to accumulate individual savings—it’s that system that has failed American workers.
As I see it, the system that relies on individual decisions to save for retirement can’t be saved. Instead, it should be retired. And then replaced by the obvious alternative: transferring a portion of the growing surplus to workers when they retire. Such a system would be able to provide more generous benefits, starting at an earlier age—exactly what is need right now.
We can even give that system a name. Let’s call it Social Security 2.0.
*Now, it’s true, larger employers are more likely to offer 401(k)-style plans than smaller ones. So, 79 percent of Americans do in fact work at places that sponsor retirement plans. The problem is just 41 percent of those workers are making contributions to such a plan—more than 20 points lower than previous estimates.