It can feel like there is a growing disparity in the U.S. economy, dividing consumers into groups of haves and have-nots. The situation seems to be no different for retirees, as a significant wealth transfer is underway. Research conducted by Cerulli Associates estimates a whopping $84 trillion will shift from older to younger generations by the year 2045. This transfer of wealth is not widespread, according to Chayce Horton, a senior analyst at Cerulli. He notes that a significant amount of wealth has been created and is concentrated in the hands of fewer and older individuals than before. This imbalance raises concerns about the financial security of those who have not adequately saved for retirement.
Covering the cost of retirement has become increasingly challenging, especially with the rise in inflation. Expenses related to health and long-term care in retirement have become more expensive, adding to the financial burden faced by retirees. Fidelity estimated in 2023 that a 65-year-old single individual may need around $157,700 to cover healthcare costs in retirement, while an average retired couple at the same age would need approximately $315,000. These escalating costs, combined with low retirement balances, have led to discussions about a looming retirement savings crisis. A recent survey by the National Institute on Retirement Security found that 79% of Americans believe there is a retirement crisis, with more than half expressing concerns about their financial security in retirement.
Challenges Faced by Americans
The average 401(k) balance in the first quarter was reported to be $125,900 by Fidelity Investments, which includes both employee and employer contributions. While this number may seem substantial, it does not account for the roughly half of Americans who do not have access to workplace retirement savings accounts. This lack of access to retirement savings options poses a significant challenge for many individuals, especially those in the lower income brackets who may not be saving anything for retirement. According to Teresa Ghilarducci, a professor of economics at The New School for Social Research, mandatory savings plans that require participation from all individuals could be a viable solution to encourage more people to save for retirement.
Teresa Ghilarducci emphasizes the power of compound interest and the importance of starting early in a pension plan to accumulate enough savings for retirement. Data shows that a forced savings approach can be effective in increasing retirement savings. Ed Murphy, president and CEO of financial services provider Empower, notes that individuals who do not have access to workplace retirement savings plans are less likely to save for retirement. However, once they have access to savings through a payroll deduction, up to 90% of them will save. This highlights the importance of expanding access to workplace retirement savings accounts to ensure a more secure financial future for all Americans.
The growing retirement savings crisis in the U.S. necessitates urgent action to address the disparities in wealth transfer, rising costs of retirement, and financial insecurity faced by many Americans. Implementing mandatory savings plans and expanding access to workplace retirement savings accounts are crucial steps to ensure a more financially stable future for retirees. It is imperative to prioritize retirement savings and financial security to prevent a widespread retirement crisis in the coming years.