According to a recent analysis by the U.S. Government Accountability Office, Massachusetts has been identified as one of the worst states for retirement. The study reveals that only 1 in 10 low-income workers aged 51 to 64 have any retirement savings, compared to 1 in 5 in 2007 before the Great Recession. These workers, who earn a median income of $19,000 per year, face financial difficulties in their golden years.
In contrast, high-income Americans with an annual income of about $282,000 have seen a significant increase in their retirement assets. The median retirement assets for this group nearly doubled to $605,000 during the same period. This growing retirement gap among Americans has been a long-standing issue, as noted by retirement expert Teresa Ghilarducci. She has been researching the retirement assets of older workers since 1992 when defined contribution plans such as 401(k) plans started to replace traditional pensions. Ghilarducci’s research suggests that only the top 10% of older workers by income have seen an increase in their retirement assets, while the remaining 90% have experienced no significant growth.
The consequences of these trends are concerning. Ghilarducci predicts that more Americans are likely to face poverty in their senior years. The poverty rates among senior citizens have already increased, making this issue a pressing concern. The widening retirement gap can be attributed to factors such as income inequality and a tax system that favors the wealthy. Ghilarducci explains that retirement savings primarily come from earnings, and when there is a gap in earnings growth, it leads to a gap in retirement asset accumulation. Wealthier Americans have experienced substantial earnings growth, while low- and middle-income individuals have seen smaller increases in earnings.
Furthermore, many low-wage workers lack access to employer-sponsored retirement plans like 401(k)s, and pensions have become scarce in the private industry. Only 15% of private-sector employees have access to pensions. The tax system also contributes to the disparities in retirement savings. Higher-income employees receive significant tax benefits for their retirement contributions, while low-income workers do not enjoy the same incentives. The top-earning households receive about 60% of the tax benefits from retirement accounts, while the lowest-income Americans only receive 5%.
The middle-class is also struggling in terms of retirement savings. Although the percentage of middle-income households with retirement accounts has remained stable over the years, the median account balance has decreased. In 2007, the median account balance for the middle-class was $86,800, compared to $64,300 in 2019.
Looking ahead, workers between the ages of 50 and 64 could face further challenges as the Social Security’s trust fund reserves are projected to be depleted in 2033. If this occurs, retirees may experience a 25% reduction in their Social Security payments, causing even more difficulties, especially for those who haven’t been able to save for retirement on their own. The findings of the GAO’s study emphasize the need for reforms in the retirement system and bolstering Social Security to ensure a better future for all Americans.
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