Fed Study Underscores Retirement Crisis

Most of the coverage last week of the Fed study on household wealth focused on the gigantic financial hit taken by nearly all Americans since 2007. Dig deeper into the report, though, and it makes for even scarier reading, as many of those people losing lots of wealth are older and don’t have much time to recover before retiring.

In 2007, near the boom’s height, older households (between 55 and 64) had a median net worth of $266,200. That figure included everything -- home, savings, 401(k)s, etc. -- and is hardly the kind of money people need to get through their golden years. By 2010, though,  the nest eggs of Americans approaching retirement had shrunk dramatically, falling to $179,400 -- a 33 percent drop. The main reason for this, of course, was the collapse of the housing market, with home equity accounting for the lion’s share of older Americans’ net worth.

Older workers also experienced a drop in earnings, making it harder for them to stash away cash and make up for losses to their net worth. Indeed, barely over half of all families in the 55 to 64 group reported to the Fed that they saved money in 2010. You heard that right: Half of all workers hurtling toward retirement aren’t putting away for the future. Yikes.

Another scary finding of the study: Only 60 percent of families, 55 to 64, even have a retirement account where they take advantage of tax breaks for retirement savings. And the median amount of money in such accounts is $100,000.

Of course, that’s no surprise to us here at Demos, as we have recently been documenting the many shortcomings of the 401(k) system. Foremost among the faults of 401(k)s is that so many employers don’t offer such plans to their workers. Another major problem: most workers don’t build up a very big nest egg, even after decades in the labor force thanks to low contribution levels, stock market meltdowns, and loans taken out against their 401(k)s.

Not surprisingly, also, there is a huge disparity in who has access to a 401(k). According to the Fed report, 70 percent of Americans with a college degree have a retirement account -- compared to just 41 percent of those with only a high school diploma. The report shows, moreover, that such coverage for all groups declined somewhat between 2007 and 2010 -- reflecting a broader trend of more employers choosing not to offer 401(k)s.

Beyond the paltry assets of many older Americans, there is also the problem of debt among those in their fifties and early sixties. The Fed report shows that a great many older Americans carry credit card debt -- a worrisome trend that Demos documented a while back in our report, Retiring in the Red. Needless to say, it’s not good to be scrambling to pay off your Amex bill when you should be putting away money for retirement.

Again, no big surprises from this data. Just more warning signs that the 401(k) system isn’t working and that America is facing an epidemic of elderly poverty in the decades ahead -- a crisis that will make it very difficult to cut the big entitlement programs for seniors, which tends to be the linchpin of most centrist and conservative deficit reduction plans.