BOSTON–Credit unions have a big challenge in front of them when it comes to helping members plan for their retirements, as most are drastically unprepared to stop working, new research shows.
The pandemic, high inflation and downturns in the values of many 401(k)s and IRAs have put new pressures on retirement plans, Alicia Munnell, director of Boston College’s Center for Retirement Research, told Bloomberg.
“And that’s just for the people who have retirement accounts,” Bloomberg stated. “About half of private-sector workers don’t have an employer-sponsored retirement plan, and many of those who do end up saving very little.”
In 2019, Boston College estimated there was a $7.1 trillion retirement-savings shortfall among American households, with half of them facing a lower standard of living once they stop working. That number likely hasn’t changed much since then, despite the increase in stock and housing prices over the last three years, Munnell told Bloomberg.
No Benefits for Two-Thirds
Munnell noted the generous defined-benefit pension plans of old largely disappeared as companies cut costs and embraced 401(k)s.
“The plans work quite well for the top third of workers, not so much for the middle third and not at all for the lower third,” Munnell said. “The top third always work for companies with 401(k) plans, the middle third go in and out of employment with coverage and end up with much smaller balances, and the bottom third are generally not covered by any plan and are entirely dependent on Social Security.”
Bloomberg reported that things are likely to get worse as the Baby Boomer generation retires. The number of Americans age 65 and over is set to increase to 73 million by 2030, or about 21% of the population, compared with 49 million or 15% in 2016, according to the Census Bureau, according to the report.
‘Little Appetite’
“There’s little appetite politically to attack the problem. The idea of a national auto-IRA that workers could take from employer to employer has been bandied about for more than 15 years, but the only real action has been at the state level,” Bloomberg reported. “Even there, most state plans exclude the large and growing number of workers in the gig economy.”
“I think something will be done before we get to that, but I keep worrying we’ll have to get awfully close to the abyss before any action is taken,” Munnell told the news network.
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