In the realm of retirement planning, statistics get thrown around with reckless abandon. Most of these statistics are meant to convey the idea that the “RETIREMENT CRISIS” is upon us, getting worse, and the only way to fix it is to let me manage your money (for a small fee). We all should understand the old adage, “If it Bleeds it Leads.” This is the idea that if we want viewers or “clicks” onto our stories, the headline that seems most catastrophic is the one that is most likely to work. Consequently, we really can’t blame media sites for leading with such headlines. Its part of the job. With that being said, allow me to point out a few “colorful interpretations” of the facts that I find particularly aggregious.
To give credit where credit is due here, much of this paragraph builds on content from a recent podcast featuring Andrew Biggs; a former Deputy Commissioner with the Social Security Administration. (https://401kspecialistmag.com/andrew-biggs-explains-why-there-is-really-is-no-retirement-crisis/) While there is much in this short podcast to digest, I will focus on two small pieces. Sen Bernie Sanders (among others) recently repeated the factoid that “half of American workers have literally 0 retirement savings”. This is not a made-up fact. The Government Accountability Office has indeed published this data multiple times. However, many commentators who use this number cleverly omit the additional fact that many workers with pensions, do not save additional money in a retirement account, because they don’t need to. If we count both retirement accounts and traditional pensions as retirement savings or retirement plans, then we find that roughly 3/4 of Americans have either retirement savings, or a pension plan, or both. Looking a little deeper, most of those with neither a retirement plan nor a retirement account are those who are not working. This is not to say that having 25% of the workforce with neither asset type is the ideal situation, but its far different than implying that half the workforce has nothing to live off of in retirement.
The GAO also reports that only 1 in 10 low-income workers have any retirement savings. However, this uses the word “workers” rather loosely. In fact it ignores the fact that only 1/3 of the people in this group are actually working in a paying position. Fully 2/3 of this group have no earned income at all. Stated simply, most of these “low income workers” are not actually working. Retirement savings are intended to replace wages from working. Those with no wages, cannot afford to save for retirement, but if they did they would often be saving to replace wages that never existed. This includes those receiving disability benefits, and some early retirees. Again, this is not to say that everything is peaches and cream. However, it does highlight the fact that sensational headlines need to be fact checked before they are repeated or used in a debate.
Finally, we often run into statements about how in the “good old days” everyone had a pension, and less money is going into pension plans. However, if we look at total funds invested in pension plans and retirement accounts, on a per capita basis, and adjusted for inflation, there is roughly 3 and a half times as much money in retirement systems today, as compared to 40 years ago. This has happened through multiple factors. First, private firm contributions to retirement plans rose from 6% of employee wages in 1975, to 8.3% in 2013. We often forget that in 1975, total funds placed in the social security system were 9% of the first 63K in earnings, vs. 12.4% of the first 117,500 in earnings in 2016. (Note that both if these figures were adjusted for inflation to be in 2016 dollars.)
According to data from another paper by Saez and Zucman (https://academic.oup.com/qje/article/131/2/519/2607097) in 1950 the bottom 90% of the workforce had total retirement savings of about 15% of annual income. This figure, again for the bottom 90% of earners, is roughly 107% in 2013.
Putting all of this together we get that social security benefits are much higher, employer contributions to pension and retirement plans are much higher (compared to wages), and employee contributions are also much higher. All of this adds up to a much more rosy retirement picture than was ever realized in prior years. THERE IS NO RETIREMENT CRISIS.
Before, you send me your comments about how bad the world is, recognize that I am not saying that everything is lovely. Financing long-term care needs remains a problem, as does scams looking to suck money out of retirees. The tax code heavily favors the rich, and politicians are still kicking the social security funding problem down the road as though it will magically go away. However, you have to realize that none of these problems is new and the level of retirement preparedness in place dwarfs anything seen before in the history of the world.