Forty years ago, the United States began to fundamentally shift how its people are meant to retire. Our retirement system began to move away from defined benefit pension plans towards defined contribution plans, like 401Ks. This change shifted the burden and the risks associated with retirement planning squarely on the shoulders of individuals.
The result has been a disaster — one that educators have been mostly insulated from thanks to the protection provided by their pensions. There are three big challenges people without access to defined benefit pension plans are facing:
Access: According to the National Institute on Retirement Security, 45% of working-age households do not own any kind of retirement account assets. That means no employer-sponsored 401, no IRA—nothing. And lack of access to retirement accounts disproportionately impacts low-income individuals. Households that do own retirement accounts have 2.4 times the annual income of households that do not.
Savings: That same National Institute on Retirement Security report notes that the median retirement account balance for households near-retirement is $14,500. It’s only $2,500 for all working-age households. Millions of people are falling short of conservative estimates of the savings they will need for retirement. Many will not be able to retire. Many of those who do retire won’t be able to maintain their standard of living.
Retirement longevity: People today are living longer than they ever have before, and that means planning for a retirement that may be two or three times longer than previous generations. The problems associated with a lack of access to retirement accounts and lack of retirement savings are exacerbated as we age.
The situation is worse for women. The median household income for a woman 65 years or older is 17% less than it is for a man of the same age. So even though women generally live longer than men, they are forced to do so on significantly less retirement income.