Key Issues > Financial Security for Older Americans
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Financial Security for Older Americans

Changes to the nation’s retirement system over the past 40 years have made it increasingly difficult for people to plan and save effectively for 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.

For those workers that do have access, one type of retirement plan is a traditional defined benefit pension. These are employer-sponsored plans that traditionally promise to provide a benefit for the life of the participant, based on a formula specified in the plan that typically takes into account factors such as an employee’s salary, years of service, and age at retirement. However, these plans have become much less common over the years. Since 1975, there has been a marked shift to defined contribution plans. Defined contribution plans are employer-sponsored retirement plans that allow individuals to accumulate tax-advantaged retirement savings in an individual account based on employee and/or employer contributions, as well as the investment returns earned on the account. Defined contribution plans, which include 401(k)s, are now 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.

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).

Policymakers can assist by finding options and strategies to help individuals ensure financial security for themselves and their families as they enter their retirement years. To do so, policymakers will need to consider some important issues, including:

  • The financial shortfall facing Social Security. The Social Security Old-Age and Survivors Insurance Trust Fund that supports retirement benefits is projected to be depleted in 2031 (under current law) according to the Congressional Budget Office’s estimates, at which point continuing payroll taxes will be sufficient to pay only about three-quarters of scheduled benefits. 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 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, and the increasing responsibility of individuals to understand and manage their assets in retirement. Policymakers need to examine the effectiveness of services and protections provided to older individuals.
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  • portrait of Kris Nguyen
    • Kris Nguyen
    • Director, Education, Workforce, and Income Security
    • (202) 512-7215