It’s common knowledge that Americans aren’t saving enough for retirement. But just how large a deficit is startling.

According to a report from the National Institute on Retirement Security, the shortfall measures between $6.8 and $14 trillion. The study,released Thursday, found that 38 million (or 45%) of working-age households have no retirement account assets at all. All told, the median retirement savings of these households measured a paltry $3,000.

The report’s implications are profound from both a sociological and public policy perspective. Left unaddressed, the gap in retirement savings could lead to a diminished quality of life for many older Americans and create severe pressure on social services and the social safety net.

“Two recessions and a prolonged economic recovery have made a difficult retirement outlook even worse,” NIRS executive director Diane Oakley said in a statement. “The twin challenges of low access and low savings likely will result in grave consequences. We can expect substantial increases in public assistance costs, and even greater demands on strained families and social service organizations to help older Americans who just can't make it on their own.”

Based primarily on an analysis of 2010 Federal Reserve data, the study compared household retirement assets with the recommended retirement benchmarks established by the financial industry.

“We wanted to examine broadly how American households are faring in relation to retirement savings targets,” said Nari Rhee, the author of the study and manager of research at NIRS. “We used the Federal Reserve's Survey of Consumer Finances to analyze retirement plan participation, savings, and overall assets of all U.S. households age 25 to 64, not just those with retirement account assets.”

The study found that two-thirds of households aged 55 to 64 with one or more earners have less than one year of income in retirement accounts. The average retirement savings for near-retirement households stood at $12,000.

This is well below benchmarks set by the financial services industry. Based on a target of 85% income replacement, the firm Aon Hewitt recommends that those retiring at 65 have 11-years’ worth of current income saved. Aiming for the same 85% income replacement, Fidelity advises that people planning to retire at 67 have eight-times their current annual income set aside.

“Our findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many,” said Rhee. “Based on 401(k)-type account and IRA balances alone, some 92 percent of working households do not meet conservative retirement savings targets for their age and income.  Even when counting their entire net worth, 65 percent still fall short."

NIRS attributes much of the deficit to the 2008 financial crisis as well as the decline of workplace retirement benefits and the shift away from traditional defined benefit pensions towards defined contribution 401(k)-type accounts among private sector employers.

Nearly half (48%) of all private sector workers do not have access to employer-sponsored retirement plans, and 58% of those who do have access only have 401(k)-type benefits.

“Employers have dialed back on workplace retirement plans,” said Oakley, “while many households struggle to save as they cope with higher living expenses and stagnant wages.”

The survey calculated the size of the retirement savings deficit in four different ways: by retirement account balances ($14 trillion), total retirement assets ($11.6 trillion), total financial assets ($11.1 trillion), and net worth ($6.8 trillion).

“When you look at all our retirement assets and you balance that against what we need,” said Rachel Fauber, NIRS’s manager of membership services. “We end up $11 trillion short, about the same size as the national debt. This is a challenge on par with that of the federal debt and it should be getting more attention.”

NIRS proposes a three-pronged strategy to address the shortfall:

  • strengthen Social Security
  • expand access to retirement plans among low- and middle-income workers
  • expand the Saver’s Credit to spur retirement savings.

“The data is grim,” Oakley admits, “but I want to be as optimistic as the kindergarten teacher who tells students they 'need improvement.’ Retirement policy can improve with reforms.”

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