In a trend that raises concerns about financial security in retirement, a recent report reveals that a significant number of Americans are facing their golden years without any savings to rely on.
According to a July report by the Government Accountability Office (GAO), only 1 in 10 low-income workers aged 51 to 64 had any retirement savings in 2019, a sharp decline from the 1 in 5 reported in 2007.
Rhode Island Senator Sheldon Whitehouse commented, “After a lifetime of work, all Americans should be able to retire with dignity, but today, millions of Americans are retiring with no savings.”
Growing Income and Savings Disparities
The disparity in retirement savings is striking. While a mere fraction of low-income Americans, with a median yearly salary of $19,000, had some retirement savings in 2019, a substantial 90% of high-income households maintained a retirement account balance between 2007 and 2019.
High-income older households, earning around $282,000 annually, saw their median account balance surge from $333,000 to $605,000 during the same period. This is in stark contrast to middle-income households, with a median balance of $64,300.
The GAO attributes these disparities to factors such as longer job tenure, possessing a college degree, and receiving more substantial employer contributions.
It’s noteworthy that only about 23% of low-income workers even have access to a workplace retirement account, and some may choose to forgo contributions due to limited income or reliance on Social Security benefits.
Additionally, those depending on Social Security to cover their retirement expenses should prepare for the trust fund to become depleted within the next decade.
Racial disparities in retirement savings are also evident. In 2019, white households reported a median balance of $164,000, which is double the $80,300 reported by households of other races.
Tax Code Favors the Wealthy
An analysis by the GAO indicates that the tax code provided $195 billion in tax breaks to support retirement in 2022. However, a previous study by the Congressional Budget Office revealed that the majority of these tax breaks primarily benefit the top 20% of income-earning households, with only around 5% of lower-income Americans reaping the rewards.
Senator Bernie Sanders expressed his concerns, stating, “In America today, 55% of seniors are trying to survive on less than $25,000 a year. Given that reality, our job is to make sure that the working class in our country can retire with the dignity and respect they deserve, not to provide more tax breaks to the billionaire class.”
Strategies for Catching Up
For those looking to bolster their retirement savings, selecting the right retirement vehicle is crucial. If your employer offers a 401(k) plan, consider diverting some of your pre-tax income into the account, allowing your savings to grow tax-free. Some employers may even match your contributions.
Alternatively, explore options like an IRA or Roth IRA. A traditional IRA enables you to make tax-deferred contributions, while a Roth IRA requires you to pay taxes upfront on your contributions, leading to tax-free withdrawals in the future.
Prior to saving money for retirement, it’s crucial to pay off debts, such as credit card and student loan balances.
Consulting a financial planner can help you make sure you’re on the right track if you’re worried about falling behind on your retirement objectives or unclear about the appropriate investing methods.
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Frequently Asked Questions
Why are many Americans retiring without savings?
Limited access to retirement accounts, insufficient contributions, income disparities, and racial inequalities contribute to the retirement savings crisis.
How can low-income workers catch up on retirement savings?
Prioritize budgeting, reduce debt, explore IRAs, and seek financial advice to catch up on retirement savings.
What role does the tax code play in retirement savings disparities?
Tax code offers benefits but often favors higher-income households, contributing to savings disparities.
How can individuals bridge the racial gap in retirement savings?
Focus on financial literacy, advocate for equal access, and promote diversity and inclusion to address racial disparities.
What are practical retirement savings strategies?
Start early, use employer plans like 401(k)s, diversify investments, and consult financial advisors for a secure retirement.