Retirement Responsibility Shift to Workers Creates Inequality

In the Retirement Inequality Chartbook, authors Monique Morrissey and Natalie Sabadish discuss how their research revealed “a picture of increasingly inadequate savings and retirement income.” The authors concluded that people are “are ill-served by an inefficient retirement system that shifts risk onto workers, including the risk of outliving one’s retirement savings.” The authors further state that “the existence of a retirement system that does not work for most workers underscores the importance of preserving and strengthening Social Security, defending defined benefit [DB] pensions for workers who have them and seeking solutions for those who do not.”

The authors found that, while the retirement savings of middle-aged and older households have generally grown, those of younger households have stayed flat or declined in recent years. Gen Xers who were between age 38 and 43 in 2010 had $5,000 less in savings than their counterparts in 2004. The authors also found that seniors’ pension benefits have peaked while earnings have increased. Within the age range of 62 to 79, many of the youngest are still working.

By household income, retirement savings were unequally distributed. For example, among middle-income households, only 52% had retirement savings in 2010. The median balance in these accounts was found to be much lower than the mean ($23,000), reflecting “an unequal distribution of retirement savings even for middle-income households with positive balances,” said the authors.

African-American workers’ participation in plans used to be similar to that of white workers but has lagged behind in recent years, the authors also found. Hispanic workers have fallen behind as well. Racial and ethnic differences in retirement saving and wealth were found to be even larger than differences in participation. White households were found to have more than six times as much saved for retirement as Hispanic and African-American households.

In addition, the research showed that gaps in retirement preparedness and outcomes between college-educated workers and those without a college degree have widened over the last two decades. College-educated households were found to have nearly six times as much saved as high-school-educated households.

According to the book, unmarried people tend to be less prepared for retirement than their married counterparts (36% compared with 61%). The authors found that, while married/coupled women’s participation increased as their earnings grew and as marriage became increasingly associated with higher socioeconomic status, the retirement savings gap between men and women, though it has narrowed, remains large. While men and women saw gains in retirement savings, these savings were unequally distributed. In 2004, the median savings for men was just over $50,000, while the mean savings was more than $100,000. By comparison, the median savings for women was just under $25,000, while the mean savings was just under $75,000.

The book draws upon three primary sources of data: the Federal Reserve Survey of Consumer Finances, the University of Michigan Health and Retirement Survey and the U.S. Census Current Population Survey.

More information about the book and its authors can be found here.