A new report from the National Institute on Retirement Security (NIRS) illustrates just how important access to a retirement plan at work is to Americans’ ability to save.
“The bottom line is that if Americans are not saving for retirement through their employer, then they are probably not saving at all,” states the report released Feb. 5, “Retirement in America: An Analysis of Retirement Preparedness Among Working-Age Americans.”
The report examines how workers across demographic groups are saving—or failing to save—for retirement. The study also examines how rising costs and competing financial pressures are undermining the long-term economic security of American workers.
Drawing on the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) with the analysis based on the 2023 SIPP panel (December 2022 as the reference month), the report finds many workers still lack access to employer-provided retirement plans, have minimal savings, and face growing tradeoffs between saving for retirement and meeting basic financial needs such as housing and student loan repayment.
The study is authored by Tyler Bond, NIRS research director, and Dr. Joelle Saad-Lessler, Stevens Institute of Technology School of Business Associate Dean of Undergraduate Studies.
“Workers are far more likely to save for retirement if offered a plan at work than if they must save on their own,” Bond and Saad-Lessler wrote. According to the analysis of SIPP data, 51% of workers had a DC plan through their main employer and among workers with a positive DC plan balance, 80% had a DC plan through their main employer.
The report also noted that few people contribute to IRAs on their own. In fact, most IRAs contain rollovers from employer-sponsored 401(k)s and other DC plans.
But almost half of American workers do not participate in any employer-sponsored retirement plan, and that percentage has held steady for nearly half a century.
Median savings rates meager
While many Americans with access to a workplace plan are effectively saving for retirement, the ones without access and those that aren’t saving—at all—significantly bring down the median retirement savings rate for all U.S. workers. The analysis found median retirement savings rate for all employed American adults—half have saved more and half have saved less—is just $955 (average savings $93,229).
Among those approaching retirement—55- to 64-year-olds—the median amount saved for retirement is only $30,000. Among all workers with savings in defined contribution plans, median balances were $40,000 and average savings were $179,082—but notably that data is as of December 2022.
While recent legislative efforts have made incremental improvements to the retirement system, the report notes that major challenges remain, including the lack of access to retirement savings systems and ongoing uncertainty around the future of Social Security.
“At a time when Americans are facing a growing affordability crisis, we need to recognize that retirement should be part of that conversation,” said Dan Doonan, NIRS executive director. “Most retirement programs today rely on workers saving voluntarily, with the tension between saving and the cost of buying a home, daycare, and college creating enormous challenges for the middle class. This research shows the fragility of both the nation’s retirement infrastructure and retirement preparedness for the typical U.S. household.”
Even among those with savings, Doonan said balances often are far too low to support a secure retirement. “Today, too many households are forced to choose between paying their bills and saving for tomorrow. Strengthening access to reliable retirement plans is essential if we want Americans to retire with dignity rather than anxiety,” he said.
More report findings
The report highlights several troubling trends in retirement preparedness among working-age Americans:
• Access gaps persist: Many working Americans still lack access to employer-provided retirement plans. Public sector workers are more likely to have plan sponsorship and participation as compared to private sector workers. Hispanic workers and those with lower incomes or lower levels of education are significantly less likely to have access or participate.
• Social Security remains essential, but it is insufficient alone: Social Security accounts for roughly half (52%) of income for the typical older adult. Income from retirement plans—both defined benefit and defined contribution—represents about one-fifth of income on average.
• Contribution rates are modest: Typical employee contribution rates to DC plans range from 5% to 6%, while typical employer contributions are just under 3%.
• Retirement savings trail other assets: Retirement savings account for about one-quarter of financial assets on average for working adults, while home equity represents about one-third. For some workers, the median value of a vehicle exceeds their retirement savings.
• Student debt complicates saving: Workers with student loan debt are more likely to have access to and participate in retirement plans, but they tend to have lower account balances, fall further behind savings targets, and have significantly lower net worth than workers without student loan debt.
Webinar Wednesday
NIRS will be hosting a live webinar this Wednesday, Feb. 11 at 2 p.m. EST to walk through the findings from the new research (Register for the webinar).
Check out the full report here.
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• IRAs, 401(k)s, Drive Growth in U.S. Retirement Assets