Retirement Savings: Holding On To What Little They Have

The other day I was watching some progressives speculate out loud as to whether the stock market should be abolished on the theory that it only benefitted rich people and thus had no social value. I pointed out that a lot of perfectly ordinary Americans have retirement accounts which are invested in either stocks or in funds which include stocks. The reply was that since rich people have most of the money in retirement accounts, those don't really help ordinary people much either.

Now, it's true that Americans do not have nearly enough money saved for retirement. I think of myself as having been fairly conscientious about saving over the years (I opened a Roth IRA when I was 21 and working while going to college, and any time I've had an employer who does an 401k match I've always contributed the max that they'll match), but when I look at this chart, I'm actually close to the "low" end of total savings for my age:

And even that is mostly from the last four years, during which my income climbed to well above the median for a married family.

Here's the actual average 401k value by age group according to data put together by some of the big mutual fund companies.

The article I got these from goes on to say about this:

Every source available says that Americans are not saving enough for retirement. Vanguard recently reported the average 401k balance at year end 2013 reached a record high of $101,650. Not bad, but still much lower than my chart’s guidance of $218,000 to $350,000 for the Low and High End for a 35 year old (the average age of an American).

Meanwhile, other reports show the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Supposedly two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income. Given the median household income is roughly $52,000, that’s not a good sign.

Finally, more than 38 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401k type plan or an IRA. Hopefully these households are diligently saving their money in after-tax accounts and not solely depending on Social Security.

Now, the one thing I would not about average accounts is that if I'm any example, account balance and total savings are not the same thing. If you save via an employer's 401k, you end up with a new account every time you switch jobs. You can then roll those old 401k's into a IRA. But even though I try to stay on top of these things the result is that I have a 40lk with my current employer, a traditional IRA which 40lks from my last couple employers have been rolled into, the Roth IRA that I started back in college, and a 401k from my first employer out of college which has been so hard to get rolled over that it's still sitting out there with the whopping 2,300 that I managed to save (even with earnings of the ten years since) during two years of fairly low wage work. So the average of my four account balances is clearly much less than my total savings. However, no matter how you look at it, a lot of Americans are looking at relying heavily on social security and working longer.

Class warriors would think that this means it would be easy to attack the whole idea of personal retirement savings, take away the tax incentives on them, and encourage people t go all in on beefing up social security and fixed benefit pensions. Because, unions!

In reality, however, cutting incentives for retirement accounts is incredibly unpopular. One theory is that this is because the upper middle class is politically powerful and the broad middle class are dupes. I think a better way to think of this, however, is that people who don't have much can still feel very strongly about it. Sure, if someone making the median married family income of $72k/year has only $30k socked away in his retirement accounts and he's 45, he's in danger of having a pretty tough retirement compared to his current lifestyle (though if he' doing stuff like paying off his house that will help a lot.) But $30k may also be the largest single block of cash that he's ever had in one place to own. Telling him that you're going to take it away from him is gong to make him really angry, and the knowledge that someone making ten times his income has a muck bigger 401k will do nothing to change that.

This is something that in other circumstances progressive are fairly good at understanding: if you have less money, smaller amounts of money matter more. Well, when it comes to why people are fiercely defensive of retirement savings, that applies too.