Whom to believe?
New research from the left-leaning Economic Policy Institute finds that the shift to defined contribution plans—401ks—from defined benefit pension plans has increased retirement inequality for U.S. families, based on their income, race, ethnicity, education, and marital status.
EPI economist Monique Morrissey claims that this shift has placed the responsibility of saving on workers, “allowing policymakers to avoid fixing a broken retirement system.”
“The American retirement system is often described as a ‘three-legged stool’ comprised of Social Security, employer plans, and personal savings,” Morrissey said in a statement. “This is misleading since Social Security is by far the strongest leg of the stool. The employer leg has gotten much wobblier in the 401k era, and the savings leg has never provided much support.”
But Andrew Biggs isn’t buying it.
The resident scholar at the American Enterprise Institute (AEI) and former deputy commissioner of the Social Security Administration (SSA) thinks we’re doing just fine, and an increase in Social Security isn’t necessary.
Referencing a piece he wrote for The Hill in June, Biggs tweeted “that while pensions have given way to 401ks, 401k assets are 2-3 times higher than pension assets ever were. It’s just wrong to conclude we’re saving less for retirement today than in the past—we’re saving more.”
And in a detailed piece in National Review last week bluntly titled “We Do Not Need to Expand Social Security,” Biggs noted that the Federal Reserve reports that, “Across all age groups, retirement savings have at least doubled relative to the salaries those savings must replace once Americans retire.”
Additionally, SSA calculations done at his request found that “Americans born between 1926 and 1935 had a median retirement income equal to 111 percent of their inflation-adjusted career-average earnings. Only 25 percent of those retirees had replacement rates below 75 percent.”
The findings
Nonetheless, using data from 2016, EPI’s State of American Retirement Savings argued:
- Only 54 percent of families headed by prime-age workers (age 32–61) participate in any kind of retirement plan, down from 60 percent in 2001.
- More than twice as many families have defined contribution plans as defined benefit plans, but participation in pensions is more equal across education, race, and income groups.
- Retirement savings have stagnated in the new millennium, with nearly half of families lacking any retirement savings. Median balances for families with savings range from $1,000 for families in their mid-30s to $21,000 for families approaching retirement in 2016.
- Only 35 percent of Hispanic families and 41 percent of black families have retirement account savings. In contrast, 68 percent of white, non-Hispanic families have retirement savings.
- Single men and women are less likely than married couples to have retirement savings, and the share of single men with savings has declined significantly.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
