The financial crisis and the resulting economic recession that occurred in recent years have created inadequacies in the way middle-class Americans save for retirement, begging the question of whether this demographic can afford to retire in today’s world.
A panel of policy experts asked just that, testifying Wednesday afternoon before the U.S. Senate Committee on Banking, Housing & Urban Affairs.
Coupling the increasing shortcomings of traditional retirement assets—such as 401(k) plans and IRAs—with mounting pressures on the future of Social Security, more Americans will have to bolster their savings with additional sources of income, says Dr. Monique Morrissey economist at the Economic Policy Institute.
“Home equity and other forms of wealth may also be tapped for retirement,” Morrissey stated in her written testimony before the Senate subcommittee.
When taking into account home equity and other assets and liabilities, median net worth for older families was $179,000 in 2010, which was close to the median home value, according to 2012 U.S. Census data cited by Morrissey.
But home equity might not be enough for many households across various demographic groups in supplementing retirement savings.
“For many demographic groups, the typical median household has no savings in retirement accounts, and balances are low even when focusing only on households with savings,” Morrissey stated in the testimony.
The issue of whether middle-class Americans can afford to retire is only exacerbated when considering the deteriorating effectiveness of 401(k) plans and IRAs—conventional savings assets used to shore up the retirement accounts for many Americans for decades.
Assets like 401(k) plans and IRAs have felt the magnitude of the recent economic downturn, stated Robert Hiltonsmith, policy analyst for the public policy organization Demos, in his testimony before the subcommittee.
During the stock market plunge of 2008 and 2009, Hiltonsmith noted these retirement plans lost a total of $2 trillion in value, while the average 401(k) holder lost over one-third of his or her savings.
“I am happy to be here today to testify on the state of U.S. retirement security, because though retirement security is one of the lynchpins of economic security for the middle class, it is also proving sorely elusive for the majority of Americans,” Hiltonsmith stated.
Written by Jason Oliva