For years, salon owner Luke Huffstutter, of Portland, Ore., wanted to offer his employees a way to save for retirement. Costs were too steep for the small company, though, and few employees took the initiative to set up 401(k) plans on their own. But last summer, Oregon launched a retirement savings program that automatically enrolls employees in Roth IRAs, the first such state-sponsored program in the nation. Huffstutter signed up, and most of his 38 employees are now enrolled. “When we made it easy, they all jumped on board,” Huffstutter says. “The fact that they’re saving, and never were before, is a huge deal.”
Across the country, a large portion of American workers lack any retirement account or haven’t saved nearly enough to retire. An updated index published by the Center for Retirement Research at Boston College indicates half of working-age U.S. households risk being unable to maintain their pre-retirement standard of living once they stop working. Attention has shifted to how state governments and some localities might step in, despite Congress rescinding a rule that made it easier to establish savings programs.
In recent years, rising home values and stock market gains have led to slight savings improvements for American households overall. Over the longer term, however, an increasing number of workers will face financial challenges in retirement, with the share of working-age households unprepared having climbed about 20 percentage points since the late 1980s. A range of factors drive this trend: a higher Social Security retirement age, longer lifespans and lower interest rates. “Lots of people will end up without retirement income other than Social Security,” says Alicia Munnell, the center’s director.
The outlook is particularly bleak for those on the lower rungs of the income ladder. A steady shift away from guaranteed pensions to defined contribution savings plans has contributed to more savings inequality over the long term. Escalating housing costs and stagnant earnings for many lower- and middle-income families are further squeezing their retirement accounts. Meanwhile, wealthier households are reaping the benefits of climbing investment values.
All of this explains why the latest data from the federal Survey of Consumer Finances reflect solid savings growth for the most affluent families with the top 20 percent of household incomes, but flat retirement savings for everyone else. Vast disparities are also found across demographic groups. When the average liquid retirement savings of white families is compared with that of African-Americans and Hispanics, the gap has widened fivefold over the past 25 years, according to the Urban Institute. Young people, too, haven’t amassed the same wealth their parents did at comparable ages.
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