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Retirement Security Imperiled by Low Assets and Saving Behavior, Studies Warn

Practice Management

A paucity of financial assets among members of the middle class, and some saving behaviors, threaten many with retirement instability, two recent studies warn. 

Middle Class Assets 

The National Institute for Retirement Security (NIRS) has analyzed data from the Federal Reserve’s 2019 Survey of Consumer Finances and says that the middle class, which the study defines as those between the 30th and 70th quartiles of net worth, of three generations. The 2019 study says that the middle class of those generations—Millennials (born between 1981 and 1996), Generation X (born between 1965 and 1980) and Baby Boomers (born between 1946 and 1964)— possess only a small percentage of their generations’ financial assets: 

  • Millennials: 14%
  • Generation X: 8%
  • Baby Boomers: 6%

And the study shows that this is how that translates in terms of financial assets:

Middle Class Assets, 2019

 

Demographic Group Mean Financial Assets Median Financial Assets
Millennials (all) $17,802 $7,800
Generation X (all) $62,944 $39,000
Baby Boomers (all)  $93,298 $51,700



Saving Behavior

Not only are middle class assets modest, another study finds that many Americans’ participation in the retirement plans their employers offer is somewhat wanting. MagnifyMoney says based on a survey of more than 1,200 working Americans, 17% of those who work for employers that offer retirement plans don’t contribute anything to their retirement accounts. Further, they say that 12% of those who contribute do not do so at a rate high enough to qualify of the employer match—which they say translates to 17.5 million working Americans. 

Implications

The findings do not bode well, officials at the firms conducting the research suggest. 

Wages and asset levels affect participation in a retirement plan, says MagnifyMoney. They report that in their study, 35% of those who do not contribute any of their compensation to the employer retirement plan fail to do so because they cannot afford to. And that includes those who already have a plan—26% of whom don’t contribute, they report. 

The NIRS notes that given that middle class Baby Boomers had median financial assets of $51,700 in 2019, if one assumes that someone with those assets devotes all those assets to paying for their retirement, that person would have an annual income of approximately $2,000. That, they say, would mean that “many families would see a reduction in their standard of living.”

“In America, the middle class can no longer afford retirement. Middle class Americans face sharp economic inequality, with ownership of financial assets highly concentrated among the wealthy,” NIRS Research Manager Tyler Bond said in a press release. “This means the retirement outlook for many in the middle class is bleak at best.” 

Addressing the Problem 

The Federal Reserve argues that protecting DB plans “and ensuring access to a retirement savings plan through an employer” can help members of the middle class to be better financially prepared for retirement, Bond notes. 

MagnifyMoney, for its part, suggests that employers can help improve the situation by increasing the amount of employee contributions that they will match. They argue that “more competitive matching” could give an employer an edge in recruiting and retaining employees; they report that 49% of those whose employers offer retirement plans would like their employer to increase the match.