Despite the challenges many Americans face in setting aside enough money to finance their golden years, experts say the retirement system is not a lost cause. But a few improvements—many already in the works—could make a big difference for savers.
It's not surprising that retirement—specifically, not having enough money to retire—is Americans' top financial concern, according to a 2014 Gallup poll. As the burden of saving for retirement has shifted from employers to workers, many are falling short. At the end of 2013, the median 401(k) account balance was just $18,433, according to the Employee Benefit Research Institute. Fees are eating into those meager balances—to the tune of as much as $17 billion a year, according to a recent report from the White House. Then after retirement, there's little guidance for savers to determine how to draw down accounts to stretch that nest egg.
"A do-it-yourself retirement system isn't any more feasible than a do-it-yourself health-care system," said Monique Morrissey, an economist with the liberal Economic Policy Institute specializing in retirement security. "People need to be guided."
Even those workers expecting a pension may not be in the clear. Pension obligations have outpaced funding in many plans. A recent CNBC analysis of financial data for 150 state and local pension plans found that only six were fully funded. Last year, Congress also eased rules allowing multi-employer pension plans to cut participants' benefits, after the government's Pension Benefit Guaranty Corporation estimated its program bailing out failed plans of that kind had a 90 percent chance of being exhausted by 2032.
"It sets a dangerous precedent," said Karen Friedman, executive vice president and policy director for the Pension Rights Center.
Then there's Social Security. Younger workers are losing confidence that the program will help them in retirement, and with good reason. The 2014 Social Security and Medicare Boards of Trustees report estimates that if Congress does not act, Social Security's trust funds will be depleted by 2033. After that, Social Security Administration income from payroll taxes will only be enough to cover three-quarters of the benefits promised retirees.
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But it's not all doom and gloom. A recent study from the Center for Retirement Research at Boston College estimated that only about 12 percent of households approaching retirement might be falling short, provided they spend less once their children leave home and their household spending declines in retirement.
Industry groups, such as the Investment Company Institute, have called the retirement system "an American success story," noting that more than 80 percent of workers with access to retirement plans participate in them and those approaching retirement have an average combined balance of nearly $360,000 in their employer-sponsored retirement plans and IRAs.
"The U.S. retirement system—made up of Social Security, 401(k) plans, pensions, IRAs and homeownership—is strong and working for the vast majority of Americans," an institute spokesperson said. "Any changes should build on the system's successes by expanding access to savings opportunities for employers and workers."