90% Of Lower-Income Adults Over 50 Have Nothing Saved For Their Retirement As Millions Near Retirement Age

A massive number of lower-income workers over 50 have little to no savings for retirement, according to a recent analysis by the U.S. Government Accountability Office (GAO).  

The study, examining data from the Federal Reserve’s Survey of Consumer Finances, highlights a major contrast between low-income workers and their high-income counterparts in terms of retirement savings.

The GAO found that only 10% of low-income workers aged 51 to 64 had retirement savings in 2019, a decline from 20% in 2007. This group, with median earnings of approximately $19,000 annually, contrasts with high-income Americans, who earn about $282,000 per year and have seen their median retirement assets nearly double to $605,000 over the same period.

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Teresa Ghilarducci, a professor of economics at the New School for Social Research in New York, notes that only the top 10% of older workers by income have increased their retirement assets since 1992. This disparity is attributed to several factors, including widening income inequality and a tax system that favors the wealthy.

Low-wage workers often lack access to employer-sponsored retirement plans like 401(k)s, and private industry pensions have dwindled, with only 15% of private-sector employees having access to them. The tax system offers additional savings benefits for higher-income employees, with the top-earning households receiving about 60% of the tax benefits from retirement accounts.

The middle class is also facing challenges, with the median account balance for middle-income households dropping from $86,800 in 2007 to $64,300 in 2019. This decline in retirement readiness among millions of Americans is likely to result in more senior citizens living in poverty, as financial hardship among this group is already rising.

Racial disparities also play a role in retirement savings. According to published calculations from the Annual Social and Economic Supplement (ASEC) of the Current Population Survey, only 2 in 5 Black workers and less than 1 in 3 Hispanic workers participate in a retirement plan. This is significantly lower than the participation rates for white and Asian workers​​. Additionally, the two racial groups with the lowest retirement plan participation rates, Hispanics and Blacks, have the largest share of their workers in lower income groups, with nearly 3 in 4 Hispanics and 2 in 3 Black workers earning less than $50,000 annually​​.

The Consequences Of Insufficient Retirement Savings

Retiring without adequate savings can have serious consequences. The average Social Security benefit, which was $1,827 per month at the start of 2023, only replaces about 40% of the average earner’s preretirement income. This creates a drastic income gap for retirees, especially those without additional savings. Many retirees may find their monthly Social Security payments insufficient to cover basic living expenses, such as housing, utilities, transportation and healthcare.

The struggle to make ends meet could force retirees to cut back on necessities and forego luxuries entirely. The reduced income in retirement could also lead to increased financial strain, potentially resulting in a reliance on social welfare programs or support from family members.

How To Catch Up Or Avoid Falling Behind

If you find yourself behind on retirement savings, it’s not the end of the world. There are still actionable steps you can take to improve your situation:

Start early and save regularly: Even if “early” means now, begin saving whatever you can. Consistent contributions, no matter how small, can accumulate over time thanks to the power of compounding interest.

Maximize employer benefits: If your employer offers a retirement plan like a 401(k) and matches contributions, ensure you contribute enough to get the full match. This is free money toward your retirement.

Diversify your savings: Don’t rely solely on one type of retirement plan. Consider opening an individual retirement account (IRA), either a Traditional or Roth, depending on your tax situation and retirement goals. You can also consider investing in startups, which offer the chance to get in at the ground level of the next big success story, like Amazon.com Inc. or Tesla Inc. 

Financial planning and advice: Consulting a financial adviser can be beneficial, especially if you’re starting late or unsure how to plan for retirement. They can provide personalized advice based on your financial situation and goals.

Live within your means: Adopt a budget that allows you to save for retirement while covering current expenses. Cutting back on nonessential spending can free up more money for retirement savings.

Catch-up contributions: If you’re over 50, take advantage of catch-up contributions allowed by the IRS to increase your retirement savings in 401(k)s and IRAs.

Consider delaying retirement: If possible, delaying retirement can give your savings more time to grow. It can also increase your Social Security benefits, as they rise with each year you delay claiming them after reaching full retirement age.

Review and adjust your savings plan regularly: As your income changes or you approach retirement, reevaluate your savings plan. Adjust your contributions and investment strategies as needed to ensure you’re on track to meet your retirement goals.