Retirement Savings Gap Widens Further Between High, Low-Income Employees

Retirement account balances of high-income households were drastically higher than low-income households in 2019 compared to 2007, exemplifying that disparities in retirement savings across socioeconomic class and race still persist, according to new data from the Government Accountability Office.  

The median retirement account balance for households aged 51 to 64 for the highest income group in 2019 was $605,000. This balance is nine times higher than that of middle-income households in 2019, which was $64,300, GAO found. 

This retirement savings gap has widened significantly since 2007, when high-income households had a median retirement account balance that was about four times higher than middle-income households—which was $86,000compared to $33,000, respectively.  

In 2022, tax incentives for workers to save in tax-preferred retirement accounts cost the federal government nearly $200 billion in forgone revenue, according to the Department of the Treasury. As a result, Congress is concerned that federal tax incentives for workers in tax-preferred retirement accounts are going mostly toward higher income workers and are doing little to help lower-income workers save for retirement. 

Senator Sheldon Whitehouse, D-Rhode Island, and Senator Bernie Sanders, I-Vermont, asked the GAO to examine disparities in the distribution of retirement account balances across income class, age and race. 

Tax Breaks Benefit High Earners 

In its report, the GAO found that low-income households were less likely to even have a retirement account balance in 2019 than in 2007. Ten percent of low-income households had a balance in 2019, compared to 20% in 2007. For high-income households, 90% had a retirement account balance in both 2007 and 2019. 

“For those with a balance, the median balance was higher for high-income households over the period, while any chance for the other income groups was not statistically significant,” the report stated. 

Only about 23% of low-income workers have access to a workplace retirement account and many may not choose to participate if they have limited disposable income or expect Social Security to provide most of their income in retirement. Increasing contribution limits for workplace retirement accounts almost entirely benefits high-income workers, GAO argued, as about 23% of high-income compared with about 3% of middle-income older workers contribute up to the individual limit.  

Angela Antonelli, research professor and executive director at the Georgetown University Center for Retirement Initiatives, said via email that an estimated 57 million private sector workers lack access to retirement savings, and most of those workers are employed by businesses with fewer than 20 employees and earn less than $50,000 per year.  

“State-facilitated retirement savings programs are designed to reach these forgotten employers and workers and while significant progress is being made, we still have a long way to go,” Antonelli argued. 

GAO reported that “limited access to workplace retirement accounts continues to be an impediment to expanding the percentage of households with retirement savings.” 

GAO also found that high-income households are much more likely to benefit from tax perks associated with retirement plans, whereas low-income households are more likely to make hardship withdrawals, thus causing them to pay additional taxes.  

More than twice the share of low-income households than high-income households withdrew all the money from their workplace account when they left their employer between 2016 and 2018, the report shows. 

Other Factors and Disparity 

Besides income, job-related factors and race were strongly related to disparities in older worker households’ retirement account balances. As a whole, households with higher income, longer job tenure and a college education tended to have larger balances and received larger employer contributions, according to GAO’s analysis. 

In addition, non-white households and households with children had about 28% and 20% smaller balances, respectively.  

For example, about 63% of white households had a retirement account balance in 2019, compared to about 41% of households of all other races than white. For Black or African American households, GAO found a significant decline from 50% with a retirement account balance in 2007 to 35% in 2016. 

In 2019, white households had median balances of about $164,000, about twice that as households of all other races, where median balances were about $80,300.  

Low-income households are also more often divorced, widowed or separated and tend to experience unemployment more frequently. All the factors can impact overall retirement savings, the research found. 

Antonelli added that plan sponsors “can and should do more to boost plan participation, such as offering a plan and using auto-enrollment,” which GAO points out is highly effective.  

“However, there are also powerful headwinds that make saving challenging for many lower income workers and disproportionately affect people of color, including the lack of employment opportunities and education and income inequality,” she said.