Do We Face a Retirement Crisis?

The popular view among Americans is that we face a retirement crisis. Traditional pensions have almost disappeared in the private sector and been replaced by 401(k)s with less than 50% participation and inadequate savings. According to one survey, 88% of Americans fear we face a retirement crisis.

But receiving far less publicity are views from a few experienced researchers pointing to evidence that retirees are actually doing okay. I’ll sort out these differing views.

An ominous outlook

Over the past 40 years, there has been a dramatic shift in the private sector from traditional defined-benefit pensions to retirement-savings plans, mostly IRAs and 401(k)s. In the early 1980s over 60% of private sector employers offered defined-benefit (DB) plans, and that has declined to less than 20% today. And benefits have been frozen in many DB plans and not offered to new employees. Retirement savings plans have not made up for the loss of traditional pensions. Only about 50% of workers have employer-sponsored plans, and many who are offered such plans either fail to participate or contribute adequately. This recent Wall Street Journal report cited a statistic from the Center for Retirement Research at Boston College (CRR): For households nearing retirement age and participating in a 401(k), the median balance in tax-advantaged investment accounts is $135,000. Such a balance would only produce about $600 per month if annuitized at age 65.

Those are not the only issues with retirement-savings plans. “Leakages” from such plans are common as families lack other funds when emergencies arise, and workers often cash out when they change jobs. Employees lack the skills to allocate assets and manage money in these plans, and, when they get to retirement, are particularly clueless about how to convert retirement savings into sustainable lifetime income. And there are special difficulties for certain segments of the population such as “gig” workers, single women (many widowed) and minorities.