AMERICA’S $7 TRILLION RETIREMENT CRISIS IS ONLY GETTING WORSE

Americans have been warned for years of an impending retirement crisis. Yet the situation is getting worse.

Even when everything was
going right — inflation was
nonexistent, interest rates were
low and stocks were in an
extended bull market — there
was a multi-trillion dollar
savings shortfall.

Then came a pandemic, war in
Europe, decades-high inflation,
the fastest rate-hiking cycle
since the early 1980s and fears
of a recession. The resulting
market turmoil erased some
$3.4 trillion from 401(k)s and
IRAs in the first half of 2022,
according to Alicia Munnell,
director of Boston College’s
Center for Retirement Research.

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And that’s just for the people
who have retirement accounts.
About half of private-sector
workers don’t have an
employer-sponsored retirement
plan, and many of those who do

end up saving very little.

It’s a problem that isn’t easily
fixed, and contributes to the
sense that the American Dream
is in decline. And while surging
inflation and volatile markets are
bad news for people in or nearing
retirement, the picture may be
even worse for young Americans
who are priced out of the housing
market, struggling to build wealth
and buried under mountains of
student-loan debt.

“Living standards are going to
decline for a large portion of the
population who are in retirement
— that’s the concern,” said Richard
Johnson, a retirement expert at the
Urban Institute. “For people who
are not in that age group, it’s still
concerning because it could strain
the social safety net.”

In 2019, Boston College estimated
there was a $7.1 trillion retirementsavings shortfall among American
households, with half of them
facing a lower standard of living
once they stop working. That
number likely hasn’t changed
much since then, despite the
increase in stock and housing
prices over the last three years,
according to Munnell.

“The people who profited from
that were people who weren’t at
risk in the first place,” she said.
Millions of Americans face the
reality of spending their senior
years in straitened circumstances,
struggling to make ends meet.
So how did one of the wealthiest
countries in the world end up in
this situation?

Until the Great Depression,
Americans worked until they died
or simply couldn’t anymore, at
which point they’d be dependent
on charity or extended family for
support. The misery of the 1930s
prompted the introduction of
Social Security to, as President
Franklin Roosevelt said, protect
“against the hazards and
vicissitudes of life.”

The program was intended
to provide a minimum level
of support, with individuals
and employers expected to
supplement it as life expectancies
rose and people spent more
years in retirement. But the
generous defined-benefit pension
plans of old largely disappeared
as companies cut costs and
embraced 401(k)s.

“The plans work quite well for the
top third of workers, not so much
for the middle third and not at
all for the lower third,” Munnell
said. “The top third always work
for companies with 401(k) plans,
the middle third go in and out
of employment with coverage

and end up with much smaller
balances, and the bottom third are
generally not covered by any plan
and are entirely dependent on
Social Security.”

Things are likely to get worse as
the Baby Boom generation retires.
The number of Americans age 65
and over is set to increase to 73
million by 2030, or about 21% of
the population, compared with 49
million or 15% in 2016, according
to the Census Bureau.

could take from employer to
employer has been bandied
about for more than 15 years, but
the only real action has been at
the state level. Even there, most
state plans exclude the large and
growing number of workers in the
gig economy.

Even if Congress can make
piecemeal reform, there’s an even
bigger concern: Whether Social
Security can survive in its current
form. If no changes are made, the
trust fund’s reserves are expected
to run out by 2035, and Americans
will receive only 80% of their
expected benefits.

“I think something will be done
before we get to that, but I keep
worrying we’ll have to get awfully
close to the abyss before any
action is taken,” Munnell said.