Not having enough money saved for retirement is increasingly becoming a problem in the U.S., and may be connected to a lack of financial literacy, according to a new report from the Center for Financial Services Innovation (CFSI).

While some point to income volatility, unmanageable debt loads, and a lack of short-term emergency savings to support day-to-day financial expenses as reasons why Americans struggle when it comes to long-term savings, others argue lack of financial literacy is to blame.

Specifically, the CFSI report, which was sponsored by the Prudential Foundation and academically reviewed by the Financial Security Program at The Aspen Institute, found that the ways people spend, save, borrow, and financially plan throughout their lives are “deeply interconnected,” and that “successful long-term savings can only take place if someone already exhibits a baseline level of financial health.”

“In order to spur innovation that can help [low and moderate income] pre-retirees and retirees improve their financial health, we need a more sophisticated understanding of how these groups are struggling to spend, save, and borrow on a daily basis,” the report concluded.

What Percentage of Americans Save for Retirement?

Four Ways to Measure Financial Health

To measure a consumer’s financial health or understanding, CFSI asked consumers eight different questions, broken down into four separate categories, about their finances and financial behaviors:

Spend:

1. Spend less than income
2. Pay bills on time and in full

Save:

3. Have sufficient living expenses in liquid savings
4. Have sufficient long-term savings or assets

Borrow:

5. Have a sustainable debt load
6. Have a prime credit score

Plan:

7. Have appropriate insurance
8. Plan ahead for expenses

In asking respondents about their financial health, CFSI found that due to competing demands on financial resources – daily expenses, retirement savings, nagging consumer or mortgage debt, or even co-signed student loan debt for grown children – many Americans are confused whether they should save for retirement or pay off their debt.

Additionally, CFSI found a majority of Americans “need help building liquid emergency savings, paying their bills on time and in full, and managing debt.”

A Decline in Retirement Savings

For many Americans, their “daily financial lives are getting in the way of a long-term savings strategy, either by preventing them from saving or forcing early withdrawals from tax-advantaged plans,” the CFSI report notes.

Twenty-seven percent of Americans have less than $1,000 saved for their retirement, according to CFSI, while 45 percent, or 38 million Americans aged 25 to 64, haven’t saved anything for their retirement.

If you include all households in the U.S., not just those with retirement savings, the median retirement account balance is $3,000 for working-age households, and close to $12,000 for near-retirement households.

Part of the reason retirement savings accounts have decreased is that it’s no longer safe to assume a retiree is debt-free.

Mortgages, car loans, and credit card debt are eating up more and more of Americans’ savings than before.

According to a study from the University of Michigan’s Retirement Research Center on health and retirement, 42 percent of Americans between the ages of 56 and 61 carry an average debt load of $17,623. Approximately $4,786 of that debt is credit card debt.

As a result, the ability to maintain one’s lifestyle on 70 percent of their income in retirement is becoming less realistic as pre-retirees and retirees are using their money to pay back debts instead of saving for the future.

“The findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many,” according to a study from the National Institute on Retirement Security.

Lower and Moderate Income Retirees Disproportionately Affected

In addition to fewer Americans saving for retirement, CFSI found more and more retirees can no longer rely on employer-sponsored defined benefit plans – plans where employers are normally the only contributors and give employees a permanent right to any retirement benefit – to fund their retirement.

Instead, Social Security, defined contribution plans, like a 401(k), and Individual Retirement Accounts (IRAs) now make up the majority of a retiree’s income.

A reduction in retirement income sources, combined with lower personal savings rates and rising costs for goods and services, means that at least 50 percent of the American population does not have enough money to maintain their standard of living in retirement, according to CFSI’s report.

Persons with low to moderate incomes are experiencing this phenomenon more intensely than their higher-earning peers.

When asked if they are at least moderately confident they have sufficient long-term savings or assets to support them in retirement, 51 percent of upper-middle and high-income earner retirees reported they were confident compared to 15 percent of low and moderate-income retirees. Similarly, 36 percent of upper-middle and high-income earner pre-retirees expressed they were confident in their savings or assets, compared to 9 percent of low and moderate-income pre-retirees.

CFSI concluded that if those working in the financial industry worked to increase financial literacy, the financial realities for many Americans would change – not just for pre-retirees or retirees.

This push for an increase in financial literacy offerings may prove to be extremely beneficial for millions given that 40 percent of Americans across all income groups reported they could not come up with $400 in the case of an emergency or would have to sell something or borrow to cover the cost, according to a 2017 report from the Federal Reserve.

Struggle to Save Affecting Americans of All Ages

“Having sufficient emergency savings is a significant financial health challenge for both [low and moderate income] pre-retirees and retirees,” CFSI says, noting there are 6.4 million seniors in the U.S. living below the poverty line.

Additionally, due to increased reliance on programs like Social Security to fund Americans’ retirement, the U.S. has accumulated a national retirement savings deficit estimated between $6.8 trillion to $14 trillion.

In recent years, a handful of states, including Oregon, California, Illinois, Connecticut, and Maryland, launched state-sponsored auto-enrollment IRA programs or plan to do so in the next year.
OregonSaves, the first state-led retirement savings program to launch in the U.S., comes as awareness for the looming retirement crisis increases. In Oregon, 45 percent of workers have access to a retirement plan at work.

Of the 45 percent, the average retirement contribution balance was $31,037 in 2012, which helps explain why Social Security was the largest source of income for 61 percent of the state’s population; and the only source of income for 30 percent of Oregonians aged 65 and older.

Since the implementation of OregonSaves is fairly recent, the total impact of the program is not yet known. But state officials reported more businesses are offering retirement programs following an increase in financial literacy programs.

Ways to Take Action

If you’re worried about the savings, or lack thereof, that you’ve set aside for your retirement, there are some steps you can take to improve your financial situation:

1. Pay down debt. Prioritize high-interest credit card debt before further funding your retirement accounts, unless your company matches your 401(k) contribution.

2. Stop financially supporting your adult children. Nearly two-thirds of American parents provided financial support to an adult child in the past 12 months. Don’t go into debt for your adult child; let them be the ones to take on debt.

3. Downsize. Look for ways to alter your lifestyle to save money. Consider moving to a smaller home that will cost you either less in rent or less than your mortgage or trading in your car for a less expensive one.

4. Delay your retirement. No one wants to see the finish line move farther away, but if working an additional year or two could give you more time to pay off debt. Retiring later can also delay the age when you begin to receive Social Security benefits. According to the Social Security Administration, those who retire at 62 earn an average of $1,077 per month while those who retired at 67 take home an average of $1,372 per month.

5. Ask for help. A credit counselor, financial adviser or elder law attorney can help you manage your finances and provide advice.