A new study finds that two-thirds of people are confident they will be able to maintain a comfortable lifestyle in retirement, but diving deeper into the data shows that sentiment varies dramatically across demographic segments.
Overall, roughly 1 in 4 Americans (24%) strongly agree they are currently building or have built a large enough retirement nest egg. But when comparing by income levels, just 12% of individuals with a household income (HHI) of less than $50,000 strongly agree they are currently building or have built a large enough retirement nest egg. This compares with 20% of those with an HHI of $50,000 to $99,999, 34% with an HHI of $100,000 to $199,999, and 47% with an HHI of $200,000+.
These findings are contained in the Transamerica Center for Retirement Studies’ (TCRS) 190-page Compendium of Demographic Influences on Retirement Security, a comprehensive report that examines the retirement prospects of Americans based on a survey of more than 10,000 U.S. adults conducted in late 2022. It offers more than 25 key indicators of retirement readiness by general population, household income, urbanicity, race/ethnicity, gender and LGBTQ+ status.
“Demographic influences can profoundly affect an individual’s and family’s ability to prepare for a financially secure retirement. A greater understanding of these influences can help policymakers, the retirement industry, and employers to identify opportunities, envision solutions, and inform priorities for strengthening our retirement system,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
Income Factors
In what may come as no surprise, a person’s ability to financially prepare for retirement is greatly impacted by their household income. TCRS found that 52% of individuals with an HHI of less than $50,000 rely or expect to rely primarily on Social Security in retirement, compared with 34% of those with an HHI of $50,000 to $99,999, 20% with an HHI of $100,000 to $199,999, and 9% with an HHI of $200,000+.
Among the more dire findings is that, among those not yet retired, individuals with an HHI of less than $50,000 have saved just $1,000 in total household retirement accounts. In contrast, those with an HHI of $50,000 to $99,999 have saved $36,000, those with an HHI of $100,000 to $199,999 have saved $156,000, and those with an HHI of $200,000+ have saved $609,000 (estimated medians).
Only 59% of employed workers with an HHI of less than $50,000 are offered a 401(k) or similar plan by their employer, and 59% of them participate. In comparison, 74% of those with an HHI of $50,000 to $99,999 are offered a plan, and 76% participate, while 84% with an HHI of $100,000 to $199,999 are offered a plan, and 86% participate. Similarly, 84% of employed workers with an HHI of $200,000+ are offered a plan, but nearly all (95%) participate.
Meanwhile, the Saver’s Credit is available for low- to moderate-income individuals saving in a 401(k) or similar plan or IRA, yet fewer than 4 in 10 Americans who potentially meet the tax credit’s income eligibility requirements are aware of it, TCRS notes.
Rural Residents Left Behind
With economic activity in the U.S. becoming more concentrated in urban and suburban areas in recent decades, rural residents have been left behind in many ways, including retirement readiness, the study further notes.
Only 17% of rural residents are very confident they will be able to fully retire with a comfortable lifestyle, compared with 20% of suburban and 27% of urban residents.
In addition, rural residents have lower household incomes than urban and suburban residents ($50,000, $66,000, $82,000, respectively) (estimated medians).
Among those who are not yet retired, rural residents have saved just $7,000 in total household retirement accounts, while urban residents have saved $50,000 and suburban residents have saved $67,000 (estimated medians).
Only 67% of employed rural workers are offered a 401(k) or similar plan by their employer, and 72% of them participate. In comparison, 77% of both suburban and urban workers are offered a plan, and 8 in 10 participate (81%, 80%, respectively).
Influences of Race and Ethnicity
As to race and ethnicity, the survey findings further identify commonalities, expose disparities and raise questions for further research, TCRS notes.
Asian American/Pacific Islander (AAPI) individuals report the highest household income at $99,000, followed by whites ($77,000), Hispanics ($56,000), and blacks ($50,000) (estimated medians).
Among those who are not yet retired, AAPI people have saved $74,000 in total household retirement accounts while whites have saved $60,000, Hispanics have saved $29,000, and blacks have saved $17,000 (estimated medians).
Among employed workers, black (78%) and white workers (76%) are generally more likely than Hispanic (72%) and AAPI workers (71%) to be offered a 401(k) or similar plan by their employer. However, among those offered a plan, black workers (74%) are less likely than white (81%), Hispanic (79%), and AAPI workers (82%) to participate in the plan.
Women Face Greater Risks
For women, the persistency of the gender pay gap, limited access to employer benefits, and time out of the workforce for parenting and caregiving often translates to lower retirement savings and fewer government benefits, the study further notes.
Women report a total household income of $59,000 which is substantially less than the $82,000 reported by men (estimated medians), while 52% of women are employed or self-employed compared with 67% of men.
Additional findings show that nearly half of women (47%) have trouble making ends meet, compared with 39% of men. Consider that women who are not yet retired have saved $21,000 in total household retirement accounts—much less than the $73,000 saved by men (estimated medians).
Among employed workers, women are less likely than men to be offered a 401(k) or similar plan by their employers (71%, 79%, respectively). And, among them, women are less likely than men to participate in it (76%, 82%, respectively).
So what can be done to address these disparities? According to Collinson, “Strengthening the U.S. retirement system requires addressing Social Security’s funding shortfalls and reinforcing social safety nets. It also requires a collective effort among policy makers and key stakeholders to ensure that workers have access to meaningful employment throughout their working years, expand retirement plan coverage so that all working Americans have the ability to save in the workplace. By increasing our understanding of demographic influences, we can more effectively address inequalities and implement equitable solutions for all.”
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