Americans Should Be Able to Retire with Dignity

A new CAP issue brief discusses ways in which Americans can more easily achieve a comfortable retirement.

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As the first generation of workers to depend primarily on 401(k) plans—rather than the increasingly rare defined-benefit pension—starts to retire, it is abundantly clear that the private retirement system is failing too many Americans. The typical near-retirement-age worker with a 401(k) has accumulated enough money to provide a monthly retirement payment of only about $575.Making matters worse, less than half of all workers even have a retirement plan at work, and that figure has been declining over the past few decades.

Americans, therefore, are deeply worried about their ability to retire, with half of all workers saying they are not confident they will have enough money for retirement.Indeed, the accounting firm Ernst & Young estimates that 59 percent of new middle-class retirees will outlive their retirement savings, while Boston College’s National Retirement Risk Index estimates that 51 percent of households are at risk of having an insecure retirement, meaning they will be unable to maintain their pre-retirement standard of living.

Social Security, of course, provides an essential baseline of income for retirees, and must be strengthened to ensure that it continues to do so for generations to come, as the Center for American Progress has already proposed. But Social Security was never intended to be people’s only source of income in retirement. To maintain their standard of living in retirement, Americans depend upon savings accumulations in 401(k) plans and pensions and, to a smaller degree, private savings.

As a result, the failure of the private retirement system could have devastating consequences. If we continue down this path, many retirees will outlive their retirement savings, saddling their children and the country with a burden that causes significant human suffering and weighs down our economy in the near future.

To fix the problems in our private retirement system and enable far more Americans to retire with dignity and maintain their standard of living, we must make saving for retirement easier, cheaper, and more secure. We can do this by:

  • Creating a new collective defined-contribution plan—a hybrid plan that takes the best qualities of both traditional pensions and 401(k) plans
  • Opening up the Thrift Savings Plan—the 401(k) for federal employees that has model features such as low fees and sensible investment options

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