September 1, 2020
By Rahul Iyer
Retirement savings are crucial to living well beyond the age of retirement. Economist, Monique Morrissey of the Economic Policy Institute has reported some thought-provoking statistics about retirement savings in America. In this article, we will discuss some of these trends and see how 401(k)s have impacted retirement savings in the United States.
Participation in retirement schemes was reported to be 60% in 2001 to 54% in 2016. This reveals that the new millennium is doing worse than former periods when it comes to retirement saving. 401(k)-styled pension plans are doing much better than traditional pension plans. Nonetheless, the level of participation in both is still low.
A major decline in retirement savings among blacks and Hispanics has been reported by the Economic Policy Institute. 68% of white households had retirement savings in 2016. This is an alarmingly high percentage when compared to blacks (41%) and Hispanics (35%).
Ironically, statistics are showing that 401(k)s are resulting in greater inequality in retirement savings among ethnicities in America. While there are policies in place to ensure that high-income families do not win excessively when it comes to retirement-related tax subsidies, 401(k)s are actually exacerbating inequality in the area of retirement savings. This is seen in the fact that the top 20% of working-age households are raking in 59% of the total income in the nation but are responsible for 70% of national retirement account balances. The lower 60% of workers in America are earning only 23% of US income while holding only 13% of the national retirement savings account balances.
Research is suggesting that households that are being led by an individual with a college education are much more likely to have retirement account savings. The differences in education within families and the varying retirement balances reinforces the point that more educated individuals tend to have retirement savings. It was found that the average retirement balance of households led by an individual with a high school diploma or GED was $40,000, while families led by an individual with at least a bachelor’s degree had a retirement account balance of 107,000.