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Financial Security for Older Americans

Fundamental changes have occurred over the past 40 years to the nation’s retirement system. These changes have made it increasingly difficult for people to plan and save effectively for a financially secure retirement. 

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The U.S. retirement system, and the workers and retirees it was designed to help, face major challenges. About a third of private-sector workers in the United States do not have access to a retirement plan through their employers. In addition, for those who do have access, traditional defined benefit pensions have become much less common. Since 1975, there has been a marked shift to defined contribution plans, such as 401(k)s, as the primary type of retirement plan. Combined with increases in longevity, this shift has increased the risks and responsibilities for individuals in planning and managing their retirement. Yet research shows that many households are ill-equipped for this task and have little or no retirement savings.

Figure 1: Retirement Resources for All Households Age 55 and Older

Retirement Resources for All Households Age 55 and Older

Note: Retirement savings include assets accrued in defined contribution plans, such as 401(k) plans, as well as individual retirement accounts (IRA).

Finding options and strategies to help individuals ensure financial security for themselves and their families as they enter their retirement years has become even more important. For example, policymakers will need to consider:
  • The financial shortfall facing Social Security. Although the Social Security Old-Age and Survivors Insurance Trust Fund is not expected to be depleted until sometime after 2030, the strains on government finances have already begun, with Social Security paying out more than it takes in each year. It will be important for policymakers to take the steps necessary to achieve the desired balance between income adequacy and individual equity, while also moving toward program solvency.
  • The declining security of employer-provided pension plans. Participation in employer-sponsored pension plans hovers at about half of the total private-sector labor force, despite tax incentives and initiatives such as automatic enrollment. Policymakers will need to consider how to best encourage expanded pension coverage, adequate and secure pension benefits, and more effective use of tax preferences to foster workers’ retirement security.
  • The growing responsibility for individuals to plan and manage their retirement. Ensuring the financial literacy of older people has become particularly important given the transition to a financial account-based retirement system, the increasing responsibility of individuals to manage their assets in retirement and understand key factors that can affect their retirement income. Policymakers will need to examine the effectiveness of services and protections provided to individuals at older ages.
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  • portrait of Kris Nguyen
    • Kris Nguyen
    • Director, Education, Workforce, and Income Security
    • (202) 512-7215