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Top 10 Reasons Middle-Class Retirement Is at Risk

Many Americans’ ‘Golden Years’ May Be Anything But

American families typically rank retirement income security as one of their top economic worries. Today they have plenty of reasons for their angst. Household wealth dropped precipitously during the Great Recession, leaving the majority of families inadequately prepared to maintain their standard of living in retirement. And the especially weak labor market since 2007 left many households with fewer options to work longer to compensate for insufficient retirement savings. The numbers tell a depressing tale of widespread retirement income insecurity:

1. Household wealth is vanishing. Retirement is the largest reason for families to save. Declines in household wealth are thus drops in retirement income security. Household wealth was $12.4 trillion (in 2011 dollars) lower in March 2011 than in June 2007, the wealth peak before the crisis.

2. Retirement standards of living will slip. More than half of all families will not be able to maintain their standard of living in retirement. The share of families under the age of 65 who were not yet retired but who could not maintain their standard of living in retirement stood at 51 percent in 2009, the last year complete data were available.

3. Fewer employees are covered by a retirement plan at work. The share of all private-sector workers who participate in a retirement plan at work, either a defined-benefit pension or a defined-contribution retirement savings plan such as a 401(k) plan, dropped to 39.6 percent in 2009, down from 41.5 percent in 2007 and from 44.4 percent in 2000.

4. Balances in 401(k) plans are still well below their pre-crisis levels. The median account balance for all people with 401(k)s was $17,794 in 2009, down from $18,942 in 2007 and down from a peak of $19,926 in 2004.

5. Employees increasingly borrow from their 401(k) plans. Twenty-one percent of 401(k) account holders had outstanding loan balances in 2009, the largest share on record, dating back to 1996.

6. States have made significant cuts to defined-benefit pensions for their employees. Thirty-three states have reduced the pension benefits for teachers, firefighters, and police officers, among other employees, between 2001 and 2010. Several of the states, such as California and Massachusetts, offer only these pensions, but no Social Security, to their employees.

7. Employers have cut back on defined-benefit pensions. The share of all workers with a defined-benefit pension fell to 39.1 percent in 2009 from 46.3 percent in 1998. The Pension Benefit Guaranty Corporation, which insures pension benefits for private-sector employees, took over another 76 single employer pension plans in 2009 alone, representing a shortfall of $7.8 billion between promised benefits and pension plan assets.

8. Employment opportunities for older workers disappear. The employed share of people between the ages of 55 and 64 dropped to 60.3 percent in 2010, down from its last peak of 62.1 percent in 2008.

9. Unemployment among older workers soars to record highs during the crisis. The unemployment rate for people 55 to 64 rose to 7.1 percent in 2010, a record high, dating back to 1948.

10. People rush to the safe haven of Social Security. The number of people willing to accept lower monthly retirement benefits with early retirement rose by 20.2 percent in 2009 and by 11.9 percent in 2008.

These 10 reasons why American middle-class retirement is at risk should be sobering to policymakers. Steps to encourage better savings habits would help avert this crisis, but above all, enacting progressive pro-growth economic policies that spur robust job creation is key. Policies that only cut government spending will clobber our middle class and cripple them in retirement.

Christian E. Weller is a Senior Fellow at the Center for American Progress and associate professor at the Department of Public Policy and Public Affairs at University of Massachusetts Boston.


[1]. Household wealth figures are deflated by the quarterly Personal Consumption Expenditure price index. The price index is reindexed to the most recent quarter. Calculations are based on: Bureau of Economic Analysis, National Income and Product Accounts, (Department of Commerce, 2011); “Federal Reserve Statistical Release Z.1 – Flow of Funds Accounts of the United States,” available at

[2]. This figure is based on an optimistic assumption that households will turn all of their wealth into lifetime annuities upon retirement. An alternative scenario, whereby households manage the drawdown of their wealth themselves and withdraw 4 percent of their wealth annually, shows that 60 percent of households will be unable to maintain their standard of living in retirement. The data for 2009 are the most recent data. Data are taken from: the Center for Retirement Research, “Fact Sheet No. 2: The NRRI and Annuities” (2010), available at

[3]. Data for 2009 are the most recent data. Data are taken from: Craig Copeland, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2009” (Washington: Employee Benefit Research Institute, 2010).

[4]. Account balances are not adjusted for inflation. Data for 2009 are the most recent data. Data are taken from: Jack VanDerhei, Sarah Holden, and Luis Alonso, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009” (Washington: Employee Benefit Research Institute and Investment Company Institute, 2010).

[5]. Ibid.

[6]. See: The Pew Center for the States, “Road to Reform: Changes to Public Sector Retirement Benefits Across States” (2010).

[7]. Employee Benefit Research Institute, “Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2009,” EBRI Notes 31 (11) (2010).

[8]. Pension Benefit Guaranty Corporation, “Pension Insurance Data Book 2009” (2010).

[9]. Averages are based on nonseasonally adjusted data. Bureau of Labor Statistics, Current Population Survey (Department of Labor, 2011).

[10]. Ibid.

[11]. Calculations based on: Social Security Administration, “Annual Statistical Supplement,” various years.