One-third of working Americans between the ages of 55 and 65 have no retirement savings, and they are at risk of declining living standards and even poverty within the next decade, according to a study published by the Schwartz Center for Economic Policy Analysis.
The outlook for workers saving in defined contribution plans, defined benefit plans and individual retirement accounts (IRAs) is not bright either, the study finds. The median account balance for older workers with at least one of these accounts is $92,000. Based on this finding, the Schwartz Center projects that income from retirement savings would replace a median 14% of pre-retirement income for these workers, which the organization says is inefficient to maintain pre-retirement living standards.
The study notes, “The small minority that also has DB pension coverage is better prepared with a median 20% replacement rate from their retirement savings.”
The median account balance for workers with at least a DC plan and earning less than $40,000 a year is $35,000. But even among the top 10% of earners, that rate is only $250,000.
Income seems to play a role in access to retirement savings vehicles. The study finds that 50% of older workers earning less than $40,000 have no savings. That rate drops to 20% for workers making between $40,000 and $115,000. Still, 15% of earners making more than $115,00 are not saving in these accounts.
However, the study also factors in Social Security earnings projections.
The organization notes that targets are typically lower for higher earners, because Social Security replaces less of their pre-retirement earnings. In this sense, “The study assumes a replacement rate target of 85% for workers earning below $40,000, a 75% target for workers earning between $40,000 and $115,000; and a 65% target for workers earning more than $115,000.