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Why It Feels Like There Is a Retirement Crisis In America

A look at how tying retirement security to employers has created a two-tier system

Aron Szapiro


People are used to hearing scary statistics about retirement security in America. You may have heard that millions of workers are not prepared for retirement, average 401(k) balances are too small, and too many will rely solely on Social Security in retirement.

Calling it a “crisis” may be overstating things, as some numbers are not as bad as they seem when you dig into them. Still, millions of Americans do not have access to retirement savings plans at work, and there are ways to improve this state of affairs. We recently released a paper analyzing where the U.S. retirement system comes up short and what to do about it.  

The consensus view: A retirement crisis is coming

The consensus view is that if there isn’t a full-blown retirement crisis in America yet, it is coming in the form of rapidly aging baby boomers reaching retirement age without sufficient savings or other sources of income besides Social Security. The U.S. Government Accountability Office came out with a report last month calling for a comprehensive evaluation of the system because “if no action is taken, a retirement crisis could be looming.” 

The mainstream media is far less circumspect. In “The New Reality of Old Age in America,” The Washington Post profiled people working well into their 70s and mentioned a commonly-cited statistic that 33 percent of Social Security recipients rely on the program for 90 percent of their income.   

And many organizations that study retirement take the “retirement crisis” as a given. The Center for Retirement Research at Boston College, for example, features a brief entitled “Falling Short: The Coming Retirement Crisis and What to Do About It.” The Employee Benefit Research Institute matter-of-factly entitled a paper, “The Role of Social Security, Defined Benefits, and Private Retirement Accounts in the Face of the Retirement Crisis.” For its part, the National Institute on Retirement Security asked, “The Retirement Savings Crisis: Is It Worse Than We Think?”

What critics of the retirement crisis are saying

Other organizations vigorously disagree, and they make some good points.

The Investment Company Institute estimates that about three quarters of Americans are prepared for retirement—a prospect that they regard as encouraging. Andrew Biggs of the American Enterprise Institute disputes a “crisis narrative” that, in his view, is often politically motivated by those who seek to increase federal spending for retirement. This narrative, he writes, leads to “deeply misleading conclusions.”

These critics contend that many people have other sources of retirement income. They also argue that because Social Security replaces a relatively high level of wages for low-income workers (who are the least likely to have sufficient savings), many people who rely on Social Security will maintain the income they had during their working lives in retirement.

Workers face a two-tier system

It’s true that digging into the numbers reveals a somewhat better picture than the headlines would suggest. It’s also true that millions of people work for small employers who often do not offer a retirement plan to their workers, or offer worse plans that large employers. Tying retirement security to employers has created a two-tier system.

In subsequent blog posts, we’ll drill down into this two-tier system. We’ll discuss why putting big responsibilities on small employers just doesn’t work as it does with large employers, and how this approach has left millions behind.

Surely for workers without easy ways to save, this feels like a retirement crisis, even if others merely describe it as a challenge.

Read more about the retirement crisis in America in our research paper “Small Employers, Big Responsibilities.”

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