Aug 29, 2023
It’s no surprise that so many Americans are extending their time in the workforce and delaying retirement — especially when so many have no savings shored up for their golden years at all.
In fact, only 1 in 10 low-income workers between the ages of 51 and 64 had a retirement account balance in 2019, compared to 1 in 5 in 2007, according to a July report from the Government Accountability Office (GAO).
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“After a lifetime of work, all Americans should be able to retire with dignity,” said Rhode Island Senator Sheldon Whitehouse in a press release from the U.S. Committee on the Budget.
“But today, millions of Americans are retiring with no savings.”
Growing income, saving disparities
While just a small fraction of low-income Americans — who earn a median yearly salary of $19,000 — reported having some retirement savings to fall back on in 2019, a whopping 90% of high-income households had a retirement account balance between 2007 to 2019.
The median account balance for high-income older households (who earn about $282,000 per year) actually surged from $333,000 to $605,000 over that time — nine times more than middle-income households, which reported a median balance of $64,300.
The GAO points to factors such as longer job tenure, having a college degree and larger employer contributions.
Only about 23% of low-income workers have access to a workplace retirement account in the first place, and some may opt out of making contributions if they’ve got limited income or are planning to rely on Social Security benefits.
As it stands, workers relying on Social Security to cover their expenses in retirement need to prepare for the trust fund to run low within the next decade.
There’s also a pretty significant disparity when it comes to race as well. In 2019, white households reported a median balance of $164,000, double the $80,300 reported by other races.
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The GAO says the tax system benefits the wealthy
The GAO analysis says the tax code provided $195 billion in tax breaks to subsidize retirement in 2022. However, a previous study from the Congressional Budget Office revealed that it’s the top 20% of households by income that benefit from most of these tax breaks, while only roughly 5% of lower-income Americans benefited from them.
“In America today, 55% of seniors are trying to survive on less than $25,000 a year. Given that reality, our job is to make sure that the working class in our country are able to retire with the dignity and the respect that they deserve, not to provide more tax breaks to the billionaire class,” said Senator Bernie Sanders in the committee press release.
How to get ahead if you’re behind
While you’re trying to catch up on shoring up funds for your golden years, make sure you’re picking the right retirement vehicle.
For example, if your employer offers a 401(k) plan, you can divert some of your pre-tax pay into the account and grow your savings tax-free. Your employer might even [match contributions] as well.
If not, consider looking into an IRA or Roth IRA. While a traditional IRA lets you make contributions from your income before taxes are taken out, a Roth IRA means you’ll be paying taxes upfront on your contributions, so that your withdrawals are tax-free.
Setting yourself up for life in retirement — let alone one that offers disposable income — is nerve-wracking.
Before you can put funds aside, make sure you’ve either settled or have a plan for settling all your debts — including your credit cards and student loans.
If you’ve started building your nest egg but think you might be behind on your goals or you aren’t sure of the best way to handle investing for retirement, you may want to consider speaking with a financial planner to make sure you’re on the right track.
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Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.
