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Inequality looms in our retirement accounts

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(Bloomberg View) — In the Republican presidential debate Wednesday night, the issue of income inequality came up with surprising frequency. Why that happened is worthy of its own column; for now, let’s explore the issue with some recent data. Specifically, I want to consider inequality in the funding of our collective retirements.

As a nation, we do a rather mediocre job preparing for the day we stop working. We underfund Social Security, a program originally developed to combat poverty among older Americans. As individuals, we fail to save enough to fund our own secure retirements.

America’s Retirement Gap

To go deeper on the topic, let me direct your attention to Charley Ellis, founder of Greenwich Associates and former chairman of the Yale endowment. Ellis wrote the seminal investment book “Winning the Losers Game.” More recently, he co-wrote a sober explanatory book, including reasonable solutions, titled “Falling Short: The Coming Retirement Crisis and What to Do About It.” You can listen to our Masters in Business interview with Ellis here.

In the meantime, consider this analysis by the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York. Using the most recent Census Bureau data, their analysis observed that “almost half of U.S. workers didn’t have a company-sponsored retirement plan in 2013, compared with 39 percent in 1999.”

As Bloomberg News reported, “The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS.” Those statistics are simply awful.

Forget for a moment the debate as to whether Social Security will be around (it’s easily made solvent). At present, Social Security benefits average $15,700 a year, far below what most people need to replace the median U.S. salary of $53,657. 

Then consider:

Half of U.S. workers lack company-sponsored retirement plans. • Only 45 percent of businesses with fewer than 100 employees offer 401(k)s. • Those who work part time, or switch jobs frequently, or work at a small company, are less likely to have an employer- sponsored retirement plan.

It’s not just that the U.S. retirement situation is bad — it’s that it’s trending in the wrong direction.

At the opposite end of the spectrum are the retirement plans of chief executives. As a group, not surprisingly, they are doing exceedingly well. As Bloomberg reported Wednesday, “The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families — or more than 116 million people.” The 100 largest chief executive retirement funds are worth an average of $49.3 million per executive, or a combined $4.9 billion. All of these data