This week marked America Saves Week, seven days to remind Americans that saving is urgent and necessary for long-term financial stability, and that includes retirement savings. About the latter, people feel particularly pessimistic, and some are especially worried. Some experts say that there is nothing to be alarmed about, and others say that it is time to enter the state of pre-panic.
And in a recently published annual survey, working-age Americans were asked about how they felt about their retirement savings: 79% said the United States is facing a retirement savings crisis, up from 67% who thought so in 2020. The problem is much bigger than that: 55% believe that it will be very difficult for them to achieve financial security when they get to their retirement age.
Is This Concern About Retirement Savings Justified?
Sometimes people worry about things that are not necessarily problems, such as the fear of flying, for example, even though airplanes are the safest means of transportation. But other concerns are more well-founded: the reality of Social Security and parallel retirement systems, in the United States and dozens of other countries, are in crisis.
In addition, for many Americans, having the ability to save is difficult in the midst of an economy with high inflation and high living costs.
According to the National Retirement Risk Index, rising stocks and housing prices are improving retirement prospects in the United States. Despite the challenges caused by COVID-19, the real estate and stock market have significantly boosted the finances of American workers.
According to the Center for Retirement Research, the proportion of households that do not save enough to maintain their standard of living after retirement has decreased to 39% in 2022, compared to 47% in 2019. This is largely due to the increase in housing prices, which has been the main reason behind this improvement.
Although this situation has mainly benefited homeowners and those who invest in the stock market, it has also had a positive impact on low- and middle-income workers who participate in retirement plans such as the 401(k). In addition, the financial support provided by Congress during the pandemic has helped these workers increase their savings.
Despite these advances, the index points out that there are still challenges, such as the need to strengthen the retirement system, guarantee the financial soundness of Social Security and achieve universal coverage of retirement plans by employers.
Are You Still on Time to Save for Retirement?
Generation X, born between 1965 and 1980, is rapidly approaching retirement age. This generation was the first to face the shift from defined benefit pension plans to defined contribution plans, such as the 401(k). Although some Gen X households have considerable savings, such as an average of more than $243,000, the bottom half of wage earners have only a few thousand dollars saved for retirement, with an average of $40,000.
Most Gen Xers aren’t close to having enough savings to retire, which isn’t surprising due to several factors. Many of them do not have a traditional pension plan, have faced economic crises and have experienced below-average wage growth for years.
One of the key challenges that has most Americans worried: lack of universal availability of retirement savings plans in the United States. About half of private sector employees do not have the option to save for retirement at their jobs, despite the fact that automatic payroll deduction is crucial for generating savings and retirement security.
In addition, rising costs for housing, health care and long-term care are making it even more difficult to save for retirement. The rising costs especially affect older adults, who face additional financial challenges due to increased expenditures on medical care and long-term care.
