Home equity props up retirees as savings fall short

More than one-third of working-age Americans lack access to an employer-sponsored retirement plan, and those who do have median balances of just $40,000, according to a new study from the National Institute on Retirement Security (NIRS).

The analysis of U.S. Census Bureau data from December 2022 paints a stark picture of retirement preparedness for the nation’s workers.

Social Security provides about half of income for the typical older adult, but researchers found wide disparities in who can save more through workplace plans.

The study’s authors — Tyler Bond of NIRS and Joelle Saad-Lessler of the Stevens Institute of Technology — said the findings highlight the need for policy solutions that expand retirement plan access.

“Developing solutions to the retirement challenges facing many Americans requires understanding where people are left behind,” they wrote. “This report aims to shed light on how well the system is currently working and show where improvements could be made.”

Among Americans ages 65 and older, Social Security benefits represent 52% of income on average, the study found. Retirement plans — both traditional pensions and 401(k)-style accounts — account for 19% of income.

Earnings from work make up 12%, while property and investments provide 6%.

The figures vary significantly by demographic group. Social Security provides 60% of income for older Black Americans and 55% for Hispanic seniors, compared with 51% for white seniors and 46% for Asian seniors.

Those with high school education or less rely on Social Security for 63% of income, while those with graduate degrees get just 33% from the program.

Home equity’s major lifeline

Retirement savings represent about one-quarter of financial assets for the typical working adult, while home equity accounts for one-third.

Among workers ages 55 to 64, median retirement savings stand at $30,000, compared with $130,000 in home equity. Younger workers ages 21 to 34 have median retirement savings of just $3,150 and no home equity at the median.

Racial disparities also persist in wealth accumulation.

White workers have median retirement savings of $20,000 and home equity of $125,000. Black workers have median retirement savings of $874 and no home equity at the median. Hispanic workers have zero median retirement savings and zero home equity.

Plan access lags for many workers

Overall, 63% of workers ages 21 to 64 have access to an employer-sponsored retirement plan, and 62% participate in some type of retirement savings.

But these figures mask deep disparities.

Hispanic workers face a sponsorship rate of just 47%, compared with 68% for white workers. Only 43% of Hispanic workers participate in any retirement plan. Black and Asian American workers participate at rates of 54% and 69%, respectively.

Education and income drive even larger gaps. Just 34% of workers in the bottom 20% of incomes have access to a workplace plan, and only 30% participate.

Among top earners, 82% have access and 87% participate.

Workers with a high school diploma or less participate at 41%, compared with 75% for college graduates and 86% for those with graduate degrees.

Savings fall short of targets

Among workers with positive defined contribution balances, median savings stood at $40,000 in December 2022.

But when including all workers — even those with nothing saved — the median drops to just $955.

Using Fidelity‘s age-based savings targets — which recommend having the equivalent of an individual’s annual income saved by age 30 and 10 times that amount by age 67 — researchers found the typical worker falls far short. The median worker has accumulated just 4% of their target in retirement accounts.

Even among those with positive savings, the median worker has reached only 18% of their target. No demographic group reached even one-quarter of target savings at the median.

Student debt creates competing pressures

The study found complex interactions between student loan debt and retirement savings.

Workers with student debt are more likely to have access to workplace plans (70% versus 58%) and are more likely to participate (69% vs. 62%).

They’re also less likely to have zero retirement balances.

“Attending college and accruing student loan debt seems to be helping many to find jobs with decent pay and benefits, but it is also dragging down their net worth and likely reducing the amount they would otherwise be saving for retirement,” the report explained.

Industry gaps persist

Retirement plan sponsorship varies dramatically by industry.

Public administration leads at 87%, followed by finance and insurance at 83%, and educational services at 81%. At the bottom, farming stands at 24%, accommodation and food services at 29%, and other services at 36%.

Participation rates follow similar patterns, with accommodation and food services at just 22% and farming at 39%.

Among workers who participate in defined contribution plans, the median employee contribution rate is 5.3% of earnings, while employers contribute a median of 2.7%. Total contributions average 8.4%.

Withdrawals, household debt

Only 4.7% of workers took withdrawals from their defined contribution accounts in 2022.

Older workers ages 55 to 64 were most likely to withdraw at 8%. Among those taking withdrawals, the average amount represented about 20% of their balance.

Lump-sum withdrawals from any retirement plan remain rare at 1.6% of workers, although Hispanic and Black workers were more likely to take them at 2.9% and 2.3%, respectively.

Roughly 80% of seniors live in homes owned by someone in the household, but nearly one-quarter carry housing debt into retirement. Among those with housing debt, it represents 86% of total debt on average.