A secure retirement may be in jeopardy for millions of Americans

In an opinion piece from Dec. 10 on retirement issues, Andrew Biggs, a resident scholar at the American Enterprise Institute, criticized two reports from the U.S. Government Accountability Office (GAO) and argued that there is no impending retirement crisis.

We stand by our findings in these two reports — one issued in 2015 on the potential retirement security of near retirees and the other issued in 2017 on the status of the nation’s retirement system.

More importantly, we believe that Biggs’s narrow focus of the opinion piece does not address the significant questions about the future of the U.S. retirement system. 

One of the primary objectives of the 2015 report (GAO-15-419) was to examine the financial resources of workers approaching retirement. Based on our analysis of 2013 data from the Survey of Consumer Finances, we found that 41 percent of households nearing retirement (defined as those ages 55 through 64) had no retirement savings such as a 401(k) or IRA, although some had a traditional pension.

However, we also found that 27 percent of households nearing retirement had neither retirement savings nor a pension. Biggs questioned whether these “non-savers” are really doing poorly in retirement. But our analysis found that their other financial resources were low.

For example, for the 27 percent with no savings and no pension, median financial assets were $9,000 and median home equity was about $53,000. We did find that median retirement savings for households in the top 20 percent of the income distribution was $371,000, and we recognize that some households may do well in retirement. 

But more importantly, the critical question for the nation is whether the U.S. retirement system as a whole presents significant cause for concern. In our 2017 report on the U.S. retirement system (GAO-18-111SP), we describe the complex challenges that millions of Americans face as they look to retirement and conclude that there is, indeed, cause for concern.

While many workers are faring well and saving adequately for retirement, the data indicate that many others are not faring so well, making it difficult to rely on estimates for the “typical” or “average” retiree. There is a wide variety of retirement security concerns faced by various segments of the population, depending on their particular circumstances.

The U.S. retirement system has changed over the last several decades, and economic and societal trends could make retirement security for future generations less certain. Other researchers — including ones Biggs cites — point out that findings about income of current retirees cannot be easily extrapolated into the future.

With the increased prevalence of 401(k) plans and the decline of traditional pension plans, the experiences of future retirees may be quite different from current retirees. 

We found numerous significant causes for concern within the U.S. retirement system. For example, our report discusses the disproportionate lack of access to retirement plans faced by those who work for small employers; by those who work in certain industries, such as leisure and hospitality; and by low-income workers.

We cite the decline in marriage rates and the additional retirement security challenges faced by one-person households, noting that single older adults had a poverty rate triple that of those who were married. We discuss the challenges faced by those who need to, or expect to, continue working longer to help finance their retirement.

We point to the particular challenges faced by women, who are twice as likely as men to be living in poverty in retirement. We cite the fact that elderly blacks and Hispanics have recent poverty rates of 18 and 20 percent, respectively — more than double those of elderly whites. 

Further, looking at certain large retirement and savings programs, we discuss the very immediate crisis faced by retirees and workers in some large multiemployer defined benefit plans, as well as the projected insolvency of the PBGC multiemployer fund; the pending exhaustion of the Social Security trust funds; the problems faced by some public pension plans; and the gaps left by traditional defined benefit pensions.

We also raise concerns about the many things that can go wrong for those who rely on the 401(k) system, such as poor decisions about whether to contribute, how much to contribute and how to allocate assets, leakage and the challenges of managing the spend-down phase and longevity risk.

Because of these concerns, the 401(k) system is one likely to produce “winners” and “losers” not captured by data on aggregate retirement assets, by a focus on an “average” retiree and even on certain distributional analyses.

The bottom line: Fundamental changes to the U.S. retirement system over the last 40 years, coupled with societal and economic trends, have raised challenges to achieving a secure retirement. There is a need to develop thoughtful and effective policies to ensure that all Americans have the prospect of a secure retirement.

The challenges and shortfalls outlined above are why we are calling for an independent bipartisan federal commission to comprehensively examine the U.S. retirement system and make recommendations to improve how the nation promotes retirement security.

Now is the time to act, before millions of Americans potentially find themselves without the needed resources for a secure retirement.

Charles Jeszeck is the director of the U.S. Government Accountability Office (GAO). Frank Todisco is the chief actuary of the GAO.