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The Pending Retirement Crisis:  Point, Counter Point

In a recent op-ed published in The Hill, economist Andrew Biggs, reiterated his belief that concerns about a pending retirement crisis are overblown. This time, he took down a report from the Government Accountability Office, which stated that about one half of households age 55 and older have no retirement savings, such as in a 401(k) plan or an IRA.

Biggs, who is resident scholar at the nonprofit American Enterprise Institute, claimed that the GAO’s headline-friendly factoid is totally misleading.

“To start, the GAO’s ‘half aren’t saving’ factoid ignores the 40 percent of near-retirees who are entitled to a traditional pension benefit in retirement. The vast majority of federal, state and local government employees participate in a defined benefit retirement plan, with only a few of that group having a 401(k)-type account. Even 13 percent of private sector employees still have a traditional pension. Are traditional pensions not retirement savings,” Biggs asked?

Leaving aside that public employees are the last major cohort of workers to receive a pension, or that those pension plans are under relentless political attack, let’s remember that the remaining private sector pension plans are largely at Fortune 500 and 1000 companies, and that new hires are being moved into 401(k)s at an alarming rate. This is hardly a reflection of the norm for working Americans. It also doesn’t change the fact that half have no savings.

Additionally, Biggs claimed that a Survey of Consumer Finances report suggests that in 2016 consumers in the 64-70 age group reported income amounting to 92% of their pre-retirement income. That 92% of pre-retirement income represents the average income of $22,290 (accounting for all earnings except capital gains, but including savings and real estate).

We say, 92% of almost nothing is, well, almost nothing.

In an article published in the Wall Street Journal last spring, Alicia Munnell, director of Boston College’s Center for Retirement Research goes head to head with Biggs and argues that the outlook is alarming. She counters that the Consumer Finances survey misses the mark because people are living longer and need more post-retirement income.

Munnell agrees that it’s alarming that pensions are rapidly disappearing. “While 401(k) plans could be an effective replacement if employers automatically enroll employees at high savings rates, today these plans are clearly falling short. For households nearing retirement that have 401(k)s but not necessarily IRAs, the typical total balance in their retirement savings is only $111,000.

“Even worse, only about half of private-sector workers participate in any kind of employer plan at their current job. This coverage gap is a serious problem, because—outside of workplace plans—Americans save virtually nothing,” said Munnell.

And she is not alone.  The National Institute on Retirement Security has done numerous studies on Americans’ retirement security and their fears about not being prepared for retirement. The most recent study, NEWS:  Across Party Lines, Americans Worried About Retirement, shows that

  • 77 percent agree the disappearance of pensions is killing the American dream;
  • 71 percent agree that guaranteed pensions are better at delivering retirement security than 401(k)s or savings;
  • and that 88 percent of Americans agree that the nation faces a retirement crisis. The level of concern is high across gender, income, age and party affiliation. Importantly, more than half (55 percent) strongly agree that there is a crisis. To ensure a secure retirement, three-fourths of Americans plan to work longer and to spend less in retirement.

Check out the links above for a closer view of the opposing research on this subject.