Americans Low on Retirement Savings

A recent article from the Federal Reserve Bank of St. Louis discusses the current state of “retirement readiness” in the U.S. by examining the level of participation in two of the most common types of retirement accounts—and reports that many U.S. households either do not use or underuse the plans available to them.

Using data from the Survey of Consumer Finances (SCF), the study analyzed participation in the following:

  1. Employer-sponsored pension plan (ESPP)—this includes traditional pensions and defined-contribution plans such as 401(K)s.
  2. Plans offered independent of the workplace, including Individual retirement accounts (IRAs) and Keogh accounts.

The article states, “Overall, 35 percent of U.S. households do not participate in any retirement savings plan. Even among those households that do hold retirement accounts, many of them have low account balances.”

The article points out that although low savings by younger households could downwardly skew findings (since they are often saving to buy a home or for future education expenses), the study found that age only plays a small role in the decision to participate in retirement savings and that “younger households that did no participate may not be very likely to participate even by the time retirement approaches.”

The lack of retirement accounts, the article concludes, “does not necessarily imply that nonparticipants aren’t saving for retirement. Households could save through other financial assets or nonfinancial assets, such as home equity. However, the net worth (the value of all assets net of total debt) of pre-retirement nonparticipants is typically quite limited.”