The theme of my new book, “The Real Retirement Crisis,” is that when it comes to retirement, things are better than they seem.
More Americans are saving more for retirement than ever before. Retirees’ incomes have never been higher and their risk of poverty never lower. Or just ask seniors: The vast majority will tell you they’re doing fine, and self-reported financial security is getting better, not worse. All these things are facts.
But if all that is so, why do so many people think the opposite — that lying in wait, just around the corner, is a retirement crisis of inadequate income and savings?
If I’m right, how do so many others get it wrong?
So here’s problem No. 1: Many commentators don’t understand that most Americans do have retirement savings.
Sen. Bernie Sanders (I-Vt.) said, “In America today, almost 45% of older Americans between the ages of 55 and 64 have no savings at all and no idea how they will be able to retire with any shred of dignity or respect.”
Sounds pretty grim.
But it’s not just Bernie’s fever dreams of capitalistic deprivation. These numbers come from the Government Accountability Office (GAO), which conducts research on behalf of Congress.
And the no-savings meme is mainstream, with outlets like CBS News touting the same statistics.
But the no-savings narrative should really be called the “not-savings narrative” because the frightening conclusion depends entirely upon declaring that much of what Americans would call “retirement savings” really aren’t.
The claim that roughly half of near-retirees have no “retirement savings” actually says that half of near-retirees don’t have a “retirement account”. So, a 401(k) or IRA balance is retirement savings, but the $16 trillion in future benefits that Americans have accrued under traditional pensions are not retirement savings. This includes state government employees who have a pension but no retirement account.
They’re counted as having “no savings.”
It’s silly. Accrued pension benefits are retirement savings, both economically and legally speaking.
Nor does this narrative account for retirement savings that aren’t held in a tax-preferred retirement plan. The Federal Reserve asked households whether they have retirement savings outside of formal retirement plans.
Fifty-two percent had retirement savings in taxable investment accounts, 10% had a business or real estate that would generate income in retirement, while 13% had other forms of retirement savings.
According to the Fed, 87% of Americans aged 60-plus had retirement savings in 2021, nearly twice the share that Sanders, the GAO and CBS News claimed.
Using the most recent Fed data from 2023, you can see how the share of households with retirement savings increases with age. Predictably, as Americans move toward retirement, more and more households begin to amass retirement savings. It’s as if — and here I’m going to get daring — they’re actually planning ahead.
Moreover, among senior households, it is only the very lowest-income group — retirees with household incomes below $25,000 — where anything approaching the “nearly half of older Americans have no retirement savings” claim appears to be true. For age 65-plus households with total annual incomes above $25,000, roughly 9 in 10 have retirement savings.
“But, but, but … OK, most Americans do have retirement savings, but it’s not enough!”
I hear you. And we can tackle that issue in the future. But it’s one dodgy claim at a time, and here we’re handling the specific assertion that nearly half of Americans approaching retirement have no retirement savings. And that assertion isn’t anywhere close to being true.
And it would be helpful if the people reporting on and making decisions about our retirement system acknowledged that.
Andrew Biggs is senior fellow at the American Enterprise Institute and allowed this reprint of a post from his Substack “Little-Known Facts.”
