The truth about American retirement savings

A new report reveals a stark divide in American retirement savings, highlighting the struggle of lower-income households to adequately prepare for their golden years. While overall retirement assets have grown to $36 trillion, a significant portion of the increase is concentrated among higher-income workers, leaving tens of millions ill-prepared for the financial challenges of retirement.

According to Anqi Chen and Alicia Munnell of the Center for Retirement Research at Boston College, the median combined 401(k) and IRA account balances for individuals aged 55 to 64 rose from $120,000 in 2019 to $150,000 in 2024. However, this positive trend is not shared by all Americans, particularly those in lower-income brackets.

The report states that the lowest-income households saw their median retirement balances decline from $32,200 to a mere $25,000 over the same period. Additionally, the share of workers in the second lowest income group with 401(k) plans dropped from 48% to 38%. In contrast, higher-income households experienced significant gains, with median retirement savings for middle-income households more than doubling from $97,000 to $220,000 and the share of workers participating in 401(k)-like plans increasing from 53% to 61%.

Despite the positive growth in retirement savings, the overall picture remains concerning. The share of all workers participating in 401(k)-type plans has remained relatively unchanged over the past two decades, with only about half of workers aged 55 to 64 enrolled in such plans. This leaves many individuals reliant on Social Security as their primary source of income in old age, which currently provides an average monthly benefit of around $1,788.

Moreover, the rising costs associated with healthcare and long-term care further exacerbate the retirement savings dilemma. Fidelity estimates that individuals turning 65 this year would need $157,000 to cover their out-of-pocket medical expenses despite Medicare coverage. Yet, half of near-retirees will fall short of this target, leaving them vulnerable to unexpected healthcare costs. The average lifetime out-of-pocket cost of long-term care for 65-year-olds is approximately $45,000, with some individuals requiring even greater sums.

For those in the lowest income brackets, Medicaid may provide a safety net, but the report suggests that many lower-middle-income individuals who have worked low-wage jobs throughout their lives will lack the necessary financial resources to support themselves in their old age.

The issue of imbalanced retirement savings is a critical concern, putting large segments of the population at risk of financial hardship during their golden years. As millions of Americans face an uncertain retirement landscape, policymakers and individuals alike will need to address this growing crisis to ensure a secure future for all.