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Households near retirement don’t have enough savings

BPC’s new Commission on Retirement Security and Personal Savings will examine the state of personal savings and retirement security in the U.S. and make recommendations on how to improve the economic circumstances of retirees. Over the next few weeks we will look at the many important measures that illustrate different aspects of savings and retirement security.

Many Americans, including those near retirement, have not saved enough. The Employee Benefit Research Institute finds that over 40 percent of Americans are at risk of running short of money for expenses in retirement. The combination of low saving rates, insufficient emergency funds, and increased responsibility for workers has left too many Americans without adequate savings for retirement to supplement their Social Security benefits.

Fully 27 percent of households nearing retirement (age 55 to 64) have neither assets in retirement accounts nor a defined benefit pension. The median household nearing retirement with money in retirement accounts holds $100,000 in those accounts. But across all households nearing retirement – both those with and without retirement accounts – the median household has only $12,000 in retirement savings accounts. Though about 40 percent of households in this age range have a defined benefit pension without an account balance, many households risk running out of money during a retirement that could last 25 years.

To be clear: some Americans are more than fine. BPC analysis of the Survey of Consumer Finances found that about 21 percent of households near retirement (head of household between ages 55 and 64) had money in both an Individual Retirement Arrangement (IRA) and a workplace savings plan with an account balance. These households held median total retirement savings of $248,000 and the 75th percentile was $506,000. Those households are prepared both to have a comfortable income through retirement and to leave substantial inheritances behind. But many others will struggle.

Michael Bloomberg – who has pledged to give away half of his wealth before he dies – quipped that, “the best financial planning ends with bouncing the check to the undertaker.” Unfortunately, too many Americans will have to worry about checks bouncing long before that time arrives.

Alex Gold and Nick Peacher contributed to this post.

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