The U.S. retirement landscape is starting to look like a Charles Dickens novel.
Since voluntary savings plans led by 401(k)s have largely replaced traditional pensions, it’s probably no surprise that this is the best of times for many highly paid workers. Equally unsurprising is that this is the worst of times for almost everyone else, especially the 42% of workers who don’t have access to a work-sponsored plan. The stunner is just how much the luckiest among us will outpace the unluckiest on retirement day: eleven times as much. A new report from the Government Accountability Office describes this tale of two Americas. It calculates the effect that unequal pay and limited access to retirement plans will have on today’s workers decades from now. It also offers a few suggestions for how Americans might boost their retirement income.
About 60% of all U.S. households have no savings in an individual retirement account (IRA) or in a 401(k)-style account, the report found.
In working households – those where a person has a job and isn’t self-employed – some 56% have at least a little money set aside in a plan or IRA. For those in the second-lowest quartile of workers, only 50% have savings in an IRA or 401(k). Among the lowest earners, that number drops to 25%.
How will this kind of inequality play out in future decades, when workers retire? The GAO looked at current trends and simulated how they’d affect young workers just starting out. The report calculates that these 19-year-olds will eventually take in a monthly average income of $2,970 from IRAs and 401(k)-type plans. Not bad, perhaps. But that retirement plan income is heavily skewed toward the wealthiest – and $600 month is a lot different from $6,000: