Take Social Security. For years, pension experts have spoken of the three-legged stool of retirement savings: Social Security, employer pensions and private savings. In recent years, however, that stool has begun to wobble, and today, Social Security is basically the only leg holding it up.
In 1980, about 40 percent of private-sector workers had a guaranteed pension. By 2006, that had fallen to 15 percent. Today, the 401(k) reigns supreme, with a trajectory that is almost the precise reverse of guaranteed pensions: In 1979, 17 percent of workers had a 401(k). Today, 42 percent do.
Those 401(k)s, however, are woefully underfunded. In 2010, 75 percent of workers nearing retirement had less than $30,000 in their 401(k). Sixty percent of low-income households are at risk of being unable to maintain their already modest living standards in retirement.
Individual savings dont look much better. About a third of households dont have a savings account at all. More than 40 percent dont have enough to cover basic expenses if they lost their main source of income. In a vicious cycle, the need for savings is so great that many workers are tapping into their 401(k)s early: In 2010, contributions to defined-benefit pensions totaled $176 billion, while early withdrawals which carry heavy penalties totaled $60 billion.
Today, Social Security provides 37 percent of the income for all Americans over 65, and about 80 percent of the income for seniors in the bottom half of the income distribution. Given the state of private and employer pensions, those numbers will have to rise in the coming years, or else the standard of living for seniors will fall.
