Grant’s Best Practices: The State of Retirement Security - US Edition

In the last newsletter I introduced an end-of-the year roundup of relevant studies and reports. Last time I focused on reports that provided updates about the progress of state-facilitated retirement savings programs. This week I turn my attention to several research pieces that bring into focus the current state of retirement security in the U.S.

The studies summarized below make clear that inadequate retirement savings and lack of access to workplace savings plans persist as obstacles to achieving greater retirement security in the U.S. This will come as no surprise to most RSM readers, but it’s always good to be armed with current data when updating talking points and other communications materials.

In December, the Congressional Research Service released a brief titled, “Worker Participation in Employer-Sponsored Pensions.” Using data from the National Compensation Survey conducted by the Bureau of Labor Statistics the report provides the percentage of U.S. workers who have access to, and who participate in, employer-sponsored defined benefit and defined contribution plans. The report finds about two-thirds of private-sector workers have access to some form of savings plan, but that access is significantly lower for workers in low-paying occupations, for part-time workers and for workers in small companies.   

The National Institute on Retirement Security’s (NIRS) report, “Examining the Nest Egg: The Sources of Retirement Income for Older Americans” finds that people in retirement rely heavily on Social Security. Fewer than 7 percent of older Americans receive income from all three legs of the three-legged stool – Social Security, a defined benefit pension and a defined contribution plan – and 40.2 percent receive income from Social Security only in retirement.    

Another NIRS study, The Growing Burden of Retirement: Rising Costs and More Risk Increase Uncertainty, finds the burden of preparing financially for retirement is becoming increasingly difficult as workers are exposed to greater market and “longevity” risk (the risk that retirees will live longer than expected) and as they face rising health and long-term care costs. The authors’ recommendations include the development of more attractive annuities that would allow retirees to convert savings into steady streams of income in retirement.  

The risks posed to retirement security by health care costs and increasing life spans are also highlighted in a study released this year by The Center for Retirement Research at Boston College (CRR). The working paper, How Accurate Are Retirees’ Assessments of Their Retirement Risk?, finds health care costs and longevity risk to be the most significant risks, but because retirees have an exaggerated perception of market volatility, they tend to rank market risk as their highest concern.

Another CRR study, How Widespread Unemployment Might Affect Retirement Security, examines the potential long-term impact of pandemic-induced unemployment on the risk that U.S. households will fall short in retirement. The authors project that the virus-related surge in unemployment has increased the share of at-risk households from 50 to 55 percent.

Next time I will share several studies from 2020 that examine gender and racial/ethnic disparity in retirement wealth. Stay tuned!

Stay tuned and Happy New Year! / Grant

This piece was featured in the December 31, 2020 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.