Posts Tagged ‘retirement’

11358

According to a new report on the state of U.S. retirement by the Economic Policy Institute, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions.

Almost nine in 10 families in the top income fifth had savings in retirement accounts in 2013, compared with less than one in 10 families in the bottom quintile. This reflects a growing disparity in the new millennium as the share of families with retirement account savings declined significantly for all except the top income group.

11356

According to a new report on the state of U.S. retirement by the Economic Policy Institute, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions.

Nearly half of working-age families have nothing saved in retirement accounts, and the median working-age family had only $5,000 saved in 2013. Meanwhile, the 90th percentile family had $274,000, and the top 1 percent of families had $1,080,000 or more (not shown on chart). These huge disparities reflect a growing gap between haves and have-nots since the Great Recession as accounts with smaller balances have stagnated while larger ones rebounded.

 

11183

According to a new report on the state of U.S. retirement by the Economic Policy Institute, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions.

As it turns out, nearly half of U.S. families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.

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People are always amazed when I tell them how little American workers have managed to save for retirement—and, thus, why the Social Security system is so important.

According to a new report from the Economic Policy Institute, on the state of retirement for American workers, the numbers are sobering.

Remember from yesterday that nearly half of American working families have no retirement account savings at all. That makes median (fiftieth-percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.

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Of course, mean retirement savings are much higher than the median. Yet, while average retirement account savings grew somewhat between 2001 and 2013, this was mostly due to the aging of the large baby-boomer cohort, as older families have had more time to accumulate savings. And, for those baby-boomers, their retirement savings had declined on average more than 20 percent between 2007 and 2013.

In fact, rather than declines (or, for some groups, stagnation), we should be seeing rising retirement account balances at all ages to offset declines in defined-benefit pension coverage and Social Security cuts.

And we’re not.

11180

According to a new report from the Economic Policy Institute, on the state of retirement for American workers, two fundamental shifts have occurred in recent decades.

First, employers have managed to fundamentally change the nature of retirement funding by substituting defined-contribution plans for defined-benefit plans, thus shifting the risk from themselves to workers.* For example, in 1989, 41 percent of families age 32-61 had defined-benefit plans versus 35 percent that had defined-contribution plans. By 2013, that difference had reversed in dramatic fashion: only 21 percent had defined-benefit plans while 43 percent had defined-contribution plans.

Second, the percentage of families age 32-61 with any retirement plan has declined over the same period from 58 percent to 53 percent.

The combination of the two shifts has left working families even more dependent on the vicissitudes of Wall Street, since that’s where their retirement savings (if they have them) are invested, and the Social Security system, exactly when the direction of the national discussion at the elite level has been to cut Social Security payments.

Is it any wonder that American workers—while they’re working and as they attempt to plan for retirement—are feeling both insecure and angry?

 

*For those who are unfamiliar with the difference between the two kinds of plans, here’s a quick primer:

401(k) and similar plans are referred to as defined-contribution (DC) plans because employer contributions, rather than retirement benefits, are determined in advance and employers incur no long-term liabilities. Participants in these plans are responsible for making investment decisions and shoulder investment and other risks. In contrast, in traditional defined-benefit (DB) plans (pension plans, in layman’s terms), employers are responsible for funding promised benefits, making up the difference if the contributions are insufficient due to lower-than-expected investment returns, for example.

My father and many in his generation had defined-benefit plans, in other words, real pensions. I and many in my generation, if we have a retirement plan at all, only have access to defined-contribution plans.

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