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News from EPI U.S. Retirement System Fails Most Americans: 46 Charts Show How the 401(k) Revolution Has Created a Few Big Winners and Many Losers

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A new paper, from EPI economist Monique Morrissey and research assistant Natalie Sabadish, demonstrates that the current retirement system has left the vast majority of Americans unprepared for retirement. Retirement Inequality Chartbook: How the 401(k) revolution created a few big winners and many losers uses 46 charts to demonstrate the impact of the shift from pensions to individual savings accounts. The chartbook examines disparities in retirement preparedness and outcomes by income, race and ethnicity, education, gender, and marital status.

While high-income Americans have benefitted enormously from the rise of 401(k)s, most Americans are being left behind. These findings underscore the importance of preserving and strengthening Social Security, defending defined-benefit pensions for workers who have them, and seeking solutions for those who do not.

“401(k)s were never designed to replace pensions for most workers. They serve primarily as a tax shelter for high earners,” said Morrissey. “The 401(k) revolution has been a disaster, yet some policymakers are calling for cuts to Social Security, which will be the only significant source of retirement income for most Americans—if they are able to retire in the first place.”

The easy-to-read interactive charts make it clear that America’s retirement system is broken for most Americans:

  • Households in the top income-fifth accounted for 72 percent of total savings in retirement accounts in 2010 and were the only income group that had more than their annual income saved in these accounts.
  • Participation in employer-based retirement plans by workers age 25-61 declined over the past decade, from 52% in 2000 to 45% in 2010;
  • For many demographic groups, including black and Hispanic households, households headed by someone without a college degree, and single people, the typical (median) household has no savings at all in retirement accounts;
  • On average, white households have more than six times as much saved in retirement accounts as Hispanic or black households;
  • Similarly, college-educated households have nearly six times as much saved on average as high school-educated households.

Retirement disparities have grown because tax preferences favor high income families and because many 401(k) participants cannot afford to contribute enough to their plans.  By contrast, most workers in defined-benefit pensions are automatically enrolled and, in the private sector, are not required to contribute to these plans.

The situation only seems to be getting worse. Though younger workers should be saving more to make up for the loss in pension and Social Security benefits, the retirement savings of younger households have stayed flat or declined in recent years.