Middle Income Retirees at Risk of Slipping into Poverty

As many as 40% of middle-income workers are at risk of falling into poverty or near-poverty in retirement, according to a report from The New School’s Schwartz Center for Economic Policy Analysis, which says the U.S. retirement system disproportionately benefits high earners.

The report, written by Siavash Radpour, Eva Conway and Teresa Ghilarducci, cited implementing universal retirement accounts and providing workers “with more equitable and better targeted tax incentives” as among the best methods to supplement Social Security and prevent retirees from slipping into poverty.

“We pinpoint the lack of workplace retirement plan coverage as the main cause of inadequate and massively unequal retirement wealth,” Radpour, associate research director of the Schwartz Center’s ReLab, said in a statement.

According to the report, a typical older worker in the bottom half of the income distribution  (earning less than $40,000 per year) has nothing saved for retirement. Workers earning between $40,000 and $115,000 per year have median savings of only $60,000. Meanwhile, workers in the top 10% of earners (above $115,000 per year), have median savings more than three times higher at $200,000.

“Yet, such levels of savings, even when combined with Social Security benefits, are not sufficient for many workers to maintain their pre-retirement standard of living,” the report said. “Workers across the income distribution thus face an unacceptably high risk of not only downward mobility in retirement, but also poverty. Public policies must address this.”

The report said various bills introduced in Congress that aim to address retirement issues, including the collection of bills known as SECURE 2.0, set to pass this week as part of an omnibus appropriations bill, mostly benefit higher earners with significant retirement savings.

“While these measures would help improve the system, they offer little for most workers who have limited access to retirement accounts,” the authors wrote.

However, the report said the recently introduced bi-partisan Retirement Savings for Americans Act addresses the lack of access and savings incentives for lower income workers. The proposed bill would set up a savings program for workers who do not have access to one and provide matching contributions for low- and middle-income workers.

The Schwartz Center report also included policy recommendations, such as establishing a universal retirement plan, creating a refundable saver’s credit to supplement savings and protecting savings from early withdrawals.