Recent research by the National Institute on Retirement Security (NIRS) found that the typical working-age American has no retirement savings, with 59 percent of Americans ages 21 through 64 (more than 100 million individuals) not having any retirement account assets. This includes employer-sponsored 401(k)-type plans and IRAs, as well as defined-benefit (DB) pensions like PERA. The report, “Retirement in America: Out of Reach for Working Americans,” underscores the importance of access to stable and secure pensions.

NIRS found that saving for retirement is closely correlated with income and wealth, with retirement account holders earning more than three times the income of those who do not have retirement accounts. Even for older workers approaching retirement (ages 55-64) who do have retirement accounts, their median (half higher/half lower) account balance is $88,000. Using a traditional withdrawal rate of 4 percent a year, an account with $88,000 would generate only $300 in monthly income for a retiree.

Retirement savings adequacy is becoming even more critical as changes to the Social Security retirement age are beginning to impact retiring Baby Boomers. As the age for reaching full Social Security eligibility is gradually increasing to 67, the monthly benefit for those who begin receiving Social Security early at age 62 is diminishing even further. NIRS notes that these early retirees would need to have 14 times the amount of their annual salary saved by age 62 in order to reach an income-replacement rate of 10 times income at age 67, as recommended by financial experts like Fidelity.

Read more about how Coloradans and most Americans are worried about retirement.

These retirement inadequacy findings by NIRS echo those of a GAO study performed in 2017 that found a “shift to DC plans [defined-contribution plans like 401(k)s] has increased the risks and responsibilities for individuals in planning and managing their retirement.”

NIRS identifies several public policy solutions to address the lack of retirement savings. These include strengthening Social Security and expanding access to retirement savings accounts for working Americans. NIRS also recommends enhancing the Saver’s Credit, a federal tax deduction for lower-income workers’ contributions to retirement savings accounts.

The NIRS and GAO research underscore the value of a defined benefit retirement plan design in ensuring retirement income adequacy. As the NIRS report concludes, “A report card on the U.S. retirement system would at best say ‘Needs Improvement.’ ”

Read more about how defined-benefit (DB) plans earn higher returns than defined-contribution (DC) plans in a previous Retirement Roundup and how DB plans are more efficient and cost less.