Most workers have a workplace retirement savings plan, but is it enough?

A great philosopher once said, “live long and prosper” and while data suggests that the American population is doing better on the first part of the phrase, the second part is a concern.

With millions of people heading at warp speed (that’s the last Star Trek reference here) towards retirement, inadequate savings may mean that financial security is not assured for what may be several decades of post-work years.

Transamerica Center for Retirement Studies in collaboration with Transamerica Institute polled 5,730 workers across the four main adult generations, with most either millennial or Gen X, to determine their retirement preparedness and how they are using workplace plans to plan for their future.

It found a high rate of participation in an employer-sponsored 401(k) or similar plan and/or outside the workplace across the generations – 71% for Gen Z, 85% for Millennials, 82% for Gen X, and 80% of Boomers – and three quarters of all generations have been offered a plan by their employers.

The median age of starting to save in these plans has been steadily declining by generation: Gen Z started at age 20, Millennials at 25, Generation X at 30, and Baby Boomers at 35.

But while a report earlier this year found that the ‘magic number’ to have saved for retirement is $1.5 million, Boomers have just $194,000, Gen X have $93,000, Millennials have $50,000, and – given those other numbers – have made a good start with $40,000.

However, many respondents are concerned that Social Security will not be there for them when they retire including 79% of Gen Xers, who are fast approaching retirement age, including almost one third of this cohort who are expecting Social Security to be their primary source of retirement income.

“Millions of U.S. workers are at risk of not achieving a financially secure retirement. The situation is intensifying with Social Security’s and Medicare’s projected funding shortfalls, population aging, skyrocketing costs of long term care, and workers’ obstacles in saving and investing,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.

Asked what the President and Congress should prioritize to ensure financial security in retirement, 58% cited addressing Social Security’s funding shortfalls (58%), followed by addressing Medicare’s funding shortfalls (46%), making out-of-pocket health care expenses and prescription drugs more affordable (46%), and ensuring all workers can save for retirement in the workplace (45%).

FIXING SOCIAL SECURITY

Survey respondents were asked how they think the Social Security shortfalls should be addressed.

The most common answer was increasing the maximum earnings subject to payroll taxes (40%), followed by increasing the Social Security payroll tax rate (38%), preserving retirement benefit payments for retirees in greatest need (34%), and raising the retirement age (23%).

“Workers are counting on Social Security for retirement income. The clock is ticking with the Social Security trust funds’ estimated depletion in the next decade. The sooner Congress takes action, the more time workers will have to adjust their financial plans, if needed, before they retire. The longer Congress waits, the more disruptive the changes could be,” said Collinson.