Retirement security starts with retirement equity

The challenges of retirement security

As it stands today, most Americans are not sufficiently prepared for retirement, as evidenced by the Employee Benefit Research Institute’s (EBRI) finding that Americans currently have a $4 trillion shortfall in retirement savings.¹ The sheer magnitude of that number constitutes a crisis that needs to be addressed.

The implications of this crisis are already being felt by the millions of Americans who are at or approaching retirement age. Nearly half of these individuals have no retirement savings and roughly 5.3 million people aged 65 and older, or about 10%, live in poverty.² Distressingly, many Americans expect to outlive their retirement savings, and nearly 30% believe retirement will never be a financially viable option.³ This statistical snapshot offers just a glimpse of the scale and complexity of this issue.

The retirement savings gap and why it needs to be closed

The retirement savings gap highlights a general sense of insecurity across the country, and people have not been shy in voicing their concerns on the state of their retirement readiness. Eighty-one percent of non-retired Americans indicate that they are at least somewhat concerned about retirement, which represents the lowest level of confidence since 2012. When asked about their eight top financial concerns, saving enough for retirement was identified as the concern Americans worry about most.⁴ Their fears are valid; many people are on a path to finding that their savings will either fall short of their desired standard of retirement living—or even fail to cover basic expenses.⁵

Naturally, these challenges are not felt equally across all individuals. Hidden within the retirement savings gap are the impacts of longstanding societal, structural, and policy issues that put marginalized groups at a disadvantage before and during their retirement savings years. Women, for example, not only have lower incomes compared to men, but they are more likely to work part-time jobs that provide limited or no access to retirement plans. Women also have a higher debt burden than men across all major categories other than home equity.⁶ When observed through the lenses of race and ethnicity, these inequities persist in the US, as Blacks and Hispanics—who collectively make up 31% of the workforce⁷—combined hold less than half of the wealth of White households.⁸

Limited options compound retirement equity challenges

The options to combat this reality are limited, especially for those nearing retirement. While working longer and increasing one’s reliance on government support are common defaults for those unable to afford retirement, even these options are not secure, as they assume an individual will be fit enough to work beyond retirement age or the current system will be able to support increased strain.

Even for those who are physically able to work, post-retirement employment may still not be a viable option. While employers acknowledge that older workers can remain productive, they also find them relatively expensive, often limiting the number of positions available to older workers. With the number of workers over the age of 75 expected to increase 96.5% over the next decade, these jobs will be harder to come by, resulting in fewer options for Americans to support themselves in retirement.⁹

Government services may struggle to meet the needs of a growing elderly population. By 2040, over 32.6 million households aged 65 or older will earn less than $75,000 annually, a 43% increase from 2020.¹⁰ This will strain social security, which already provides over half the annual income for many seniors. The solvency of these programs is uncertain, and the rising number of elderly households will further burden a shrinking working-age population.

The retirement security challenge does not exist in a vacuum—it impacts more than the individuals facing it and has the potential of creating a ripple effect into future generations and the economy at large. A recent Pew study estimates that the current retirement savings gap will cost state and federal governments an estimated $1.3 trillion over the next 20 years.¹¹

A shift in focus: from saving to engaging

The retirement industry has invested heavily in programs to help address the retirement savings shortfall through programs like automatic enrollment, matching contributions, and financial literacy education. While a step in the right direction, these efforts have not fully closed the retirement savings gap for millions of Americans, leaving some less motivated to engage in these well-intentioned programs.

To bridge this gap, a deeper understanding of individuals' unique retirement security challenges is essential. By recognizing the difference between just asking people to "save more" and encouraging them to "engage more," the retirement system can shift the conversation. Specifically, getting from where we are to where we want to be will involve a greater emphasis on:

1. Understanding the biases that exist in current systems, programs, and thinking.
2. Addressing existing gaps in financial literacy.
3. Broadening engagement in the guidance, advice, and other retirement products that providers are developing.
4. Recognizing that contributing to a retirement savings plan is only one aspect of preparing for retirement.
   

End notes

¹ Jack VanDerhei, Ph.D., “Impact of various legislative proposals and industry innovations on retirement income adequacy,” ebri.org, January 20, 2021.
² Nancy Ochieng et al., “How many older adults live in poverty?,” KFF, May 21, 2024.
³ David H. Montgomery, “Who’s not working? Understanding the U.S.’s aging workforce,” Federal Reserve Bank of Minneapolis, February 27, 2023.
⁴ Megan Brenan, “Americans’ outlook for their retirement has worsened,” Gallup, May 25, 2023.
⁵ Judith Graham, “‘True cost of aging’ index shows many U.S. seniors can’t afford basic necessities,” CBS News, July 27, 2022.
⁶ Sudipto Banerjee, “Closing the Gender Gap in Retirement Savings,” T. Rowe Price Insights, March 2023.
⁷ US Bureau of Labor Statistics (BLS), “Labor force characteristics by race and ethnicity, 2021,” BLS Report 1100, January 2023.
⁸ Board of Governors of the Federal Reserve System (FRB), “DFA: Distributional financial accounts,” updated June 14, 2024.
⁹ Geoffrey T. Sanzenbacher, “Can employer demand support older workers today…and tomorrow?,” Issue in Brief 24-6 (Chestnut Hill, MA: Center for Retirement Research at Boston College, 2024).
¹⁰ John Scott and Andrew Blevins, “State automated retirement programs would reduce taxpayer burden from insufficient savings,” Pew CharitableTrusts, updated June 2, 2023.
¹¹ John Scott and Andrew Blevins, “State automated retirement programs would reduce taxpayer burden from insufficient savings,” Pew Charitable Trusts, updated June 2, 2023.