Why Do 36 Percent of Americans Have No Retirement Savings?


Here's a story that should scare the bejeezus out of us all:

A third of people (36%) in the U.S. have nothing saved for retirement, a new survey shows.

In fact, 14% of people ages 65 and older have no retirement savings; 26% of those 50 to 64; 33%, 30 to 49; and 69%,18 to 29, according to the survey of 1,003 adults, conducted for Bankrate.com, a personal finance website.

Why aren't people saving for retirement? A Christian Science Monitor story reports

If fewer Americans are planning financially for their long-term futures, it may be because things are getting more expensive in the near term. In another study released Monday, The US Department of Agriculture found that the cost of raising a child born in 2013 to the age of 18 has reached  $245,000. For a high-income family in the urban Northeast, the USDA found, that number could reach $455,000. To boot, those figures don't include college tuition, an expense that continues to balloon. Brian Plain, a financial planner from Oak Park, Ill. said those rising costs and more families living paycheck-to-paycheck that make it harder for families to save for retirement.

Young people discount future needs (at least I did) and everybody feels squeezed all the time. I get why people don't find time or energy to save for way down the road. That said, it's not clear that "fewer" Americans are saving for retirement than in the past (at least no evidence is presented in the story above). 

But there seems to be no question that very few people are saving beyond paying Social Security taxes. Those taxes add up, of course, and really squeeze people's incomes from the first dollar of earnings. Since 1990, the combined employer and employee taxes for Social Security come to 12.4 percent of every dollar earned up through about $117,000 (only about 5 percent of individuals make more than that in a year).

So off the top, folks are forced to kick 12 cents of every dollar into a system that since 2010 has been paying out essentially negative returns to new retirees:

Read more about that sort of unsung warfare here.

I think any explanation of why people don't save for retirement has to account for the massive chunk of off-the-top change taken by Social Security taxes, which not only squeezes income in there and now, but provides a vague, hazy retirement benefit in the future. Never mind that the Supreme Court has ruled that nobody nowhere has a right to such a thing and that Social Security has been paying out more than it brings in now for a few years and that its trust funds will be totally depleted by the early 2030s (if not sooner).

As Veronique de Rugy and I argued in the August-September 2012 issue of Reason, old-age entitlements are no longer viable from a basic accounting standpoint and they make less and less sense in a world in which elderly people have more economic clout than younger, relatively poorer people. They won't survive another 20 or 30 years in anything like their current form, nor should they.

One question I have, though, is whether the lack of savings by Americans makes it easier or harder to reform (read: abolish and replace with a safety net based on need, not age) Social Security. The sooner we have that conversation, the better.