The shift from pensions to 401(k)s has failed the majority of American workers and disproportionately harmed disadvantaged groups, according to a new report from EPI economist Monique Morrissey. In The State of American Retirement, Morrissey uses 32 charts to demonstrate how the rise of 401(k)s has exacerbated inequality, benefitting only the very rich and leaving the vast majority unprepared for retirement.
The median family between the ages of 32 and 61 has only $5,000 saved in a retirement account, while the top 1 percent of families has a million dollars or more. For many groups—lower-income, black, Hispanic, non-college-educated, and unmarried—the typical working-age family has no savings at all in these accounts.
“Our retirement system used to reduce inequality, but since the shift to 401(k)s it has only served to magnify it. These accounts are accidents of history that were never designed to replace pensions, and it should come as no surprise that they have not worked for the majority of people,” said Morrissey. “Decades after the rise of 401(k)s, pensions are still far more important to retired people. To make sure Americans are prepared for retirement, we need to defend existing pensions and expand Social Security.”
The report’s interactive, embeddable charts break down the growth in retirement inequality by income, race, ethnicity, education, gender, and marital status, showing that:
- Nearly half of all working-age families have zero retirement savings.
- Almost nine in 10 families in the top income fifth have savings in retirement accounts, compared to fewer than one in 10 families in the bottom income fifth.
- Only 41 percent of black families and 26 percent of Hispanic families have retirement account savings, compared with 65 percent of white non-Hispanic families.
- Only married couples are more likely than not to have retirement account savings.
Using newly-available data on retirement account distributions and other income in old age, Morrissey finds women, minorities, and less educated seniors in a particularly precarious position once they reach retirement age.
The report underscores the importance of preserving and expanding Social Security, defending pensions for workers who have them, and seeking solutions for those who do not. Social Security benefits are by far the most important and evenly distributed income source in retirement. Traditional pensions remain the second most important source of retirement income after Social Security: pension benefits are six times larger than distributions from 401(k)s and IRAs.