Two starkly different pictures of retirement are emerging as growing wealth inequality casts a shadow over the financial security of older Americans.
Last week, Fidelity Investments released a report showing that recent stock market conditions created a surge of 401(k) millionaires in 2023. There was a 20% jump in the number of savers whose 401(k) balances reached the $1 million mark in the final quarter of the year. The average account balance also grew to $118,600 — the highest level in almost two years.
That’s hardly the reality for Americans on the other side of the theoretical tracks, according to another report from the Senate Health, Education, Labor and Pensions (HELP) Committee. The committee convened last week for a hearing on its findings, which show that roughly half of U.S. adults overall are at risk for financial insecurity in retirement.
A similar share of people 55 and older have no retirement savings at all (much less a million bucks in their 401(k)s), and among Americans 65 and up, 52% are living on less than $30,000 a year.
“The truth is that we have a retirement crisis in America that demands our immediate attention,” Democratic Sen. Bernie Sanders, who is also chairman of HELP, said at the committee hearing.
What’s at the root of this growing wealth gap? It turns out 401(k)s may be part of the problem. While they’re an important tool in retirement saving, they weren’t meant to entirely replace defined-benefit plans, aka pensions, according testimony from Dan Doonan, executive director of the think tank National Institute on Retirement Security.
Pensions provide retired workers guaranteed monthly income, kind of like a paycheck. In addition to Social Security and personal savings, they’re also an essential component of what’s called the “three legged stool” of retirement, the old formula for optimizing income sustainability. But since the 1980s, most private companies have closed or frozen their pension benefits and turned instead to savings vehicles like 401(k)s, pushing more retirement risk onto workers.
NIRS argues that one way to alleviate retirement insecurity is to increase pension coverage — but legislators and employers will have to get on board to make that happen. Next week, we’ll talk more about tech company IBM’s recent move back to pension-like benefits, what it means for employees and whether it’s likely to inspire a so-called “pension renaissance” in the U.S.
In the meantime, if you’d like to share your own retirement story or savings experience, drop me a line at mcags@money.com. And don’t forget to check out Money reporter Pete Grieve’s recent story about 401(k) millionaires.
— Mary Ellen Cagnassola, Money reporter
