Contrary to popular belief, the majority of American workers will do just fine in retirement. They are saving more and likely will have more money in retirement than previous generations, according to a new report by the Empower Institute.
Working Americans, the report pointed out, are dealing with a modern retirement system that better prepares them to live a retirement lifestyle they imagine. They have greater access to workplace retirement plans than in the past; they are saving proportionately more; and they have better protections in place to help guard their savings.
The report, The Over-Stated Retirement Crisis, which is based upon publicly available literature, challenges the view that the 40-year-old defined contribution system is overly deficient in providing adequate retirement security for American workers. Empower Institute is affiliated with Empower Retirement, a Denver-based plan administrator that oversees $653 billion in assets for more than 9.2 million retirement plan participants.
The researchers pointed out that workplace retirement plans have evolved and improved over the years, which makes saving for retirement easier and more accessible for more American workers.
The report explained that more than 40 years ago, retirement planning in the U.S. began to shift from defined benefit plans to defined contribution plans. And while defined benefit plans had been common for decades, they had plan challenges such as they were not portable and they covered relatively few people. Employers began moving away from the defined benefit model after passage of the 1978 legislation that created defined contribution plans, the report noted.
Today, approximately $7.5 trillion are held in defined contribution plans, and access to workplace plans has increased over time, the report said, noting also that the importance of access at the household level has expanded as well. While 71% of civilian employees have access to either a defined benefit or a defined contribution plan, in 80% of married couples at least one spouse has access to a retirement plan.
Furthermore, the shift from defined benefit plans to modern define contribution plans, has played an important role in this increase, the report said. In 1980, only 38% of private sector workers participated in a pension plan. And modern plans are also more available to employees of small businesses. In 1981, there were only about 4 million participants in pension plans at companies with fewer than 100 people.
With the modern plan design and auto-features that allow participants to automatically enroll or automatically increase contributions, employees in workplace retirement plans are saving more now than they ever have. Total employee and employer contributions have increased from an average of 9.9% of employee salaries in 1984 to 12.8% of employee salaries in 2017, the report noted.
What’s more, it said, is the amount of money saved in retirement savings accounts is at near-record levels. Citing data from the Federal Reserve Board, the report said in 1975, total retirement savings were equal to 48% of total employee wages. In 2017, retirement assets topped 337% of employee wages.
So views of retirement plans and features are favorable for defined contribution account owners, the report said. In fact, the percentage of Americans who view their retirement plans favorably is at an all-time high, the report pointed out. In 2018, 75% of individuals held a favorable view of their retirement plan compared with 63% in 2009.