Why It’s Harder To Save for Retirement Today Than 50 Years Ago

According to a recent survey report by the nonprofit Transamerica Center for Retirement Studies (TCRS), “Forty-one percent of workers think that future generations of retirees will be worse off than those currently in retirement.”

A GOBankingRates survey found that Americans’ biggest financial fear is never being able to retire. Is it because the deck is stacked against people saving for retirement today?

There are several reasons why it’s more difficult to have enough money to retire today compared to 50 years ago. Here’s why Americans now struggle to build a large enough retirement nest egg.

If you were working 50 years ago and your employer offered a retirement plan, it likely was a pension, said David John, senior strategic policy advisor with the AARP Public Policy Institute.

“That basically required the employee to do nothing,” he said.

When you retired, you got a fixed payout based on your salary and how long you worked.

Trending Now: How Long $1 Million in Retirement Will Last in Every State

The biggest reason why retirement is harder now for employees, per John, is the lack of pension plans.

According to the U.S. Bureau of Labor Statistics, only 15% of private industry workers had access to a defined benefit plan, which provides guaranteed retirement benefits. Although most state and local government employees participate in pension plans, payouts might be at risk in states burdened with debt and underfunded pension plans.

As a result, fewer workers are entering retirement with a guaranteed source of income other than Social Security. Even the future of Social Security is uncertain because of funding shortfalls, which could lead to benefit cuts in a worst-case scenario.

Defined contribution plans such as 401(k) accounts are now more common and require workers, as the name suggests, to contribute their own money to retirement savings. But Americans aren’t doing a good job saving for multiple reasons.

For one thing, some people are confused by their retirement investment options.

“We have a lot of people who believe this is a big decision and if they make the wrong choices, they’ll end up regretting it,” John said. “People don’t want to do the wrong thing, so they do nothing at all.”

Workers also might find it hard to set aside money in savings because of stagnating wages and rising living costs. While COVID-era inflation has cooled significantly over the past year, many Americans are still struggling.

Years of wages failing to keep up with increasing prices have caused workers to fall behind when it comes to saving. Even now, as American wages are outpacing inflation, experts fear a cooling labor market could stop the growth. 

Americans also are having a hard time saving for retirement for this reason: Half of the workforce doesn’t have a retirement savings plan at work, John said, so they’re entirely on their own.

Opening your own retirement savings account such as an IRA can be confusing, John said. Those who find it complicated typically do nothing at all. “In that case, they save too late, they don’t save enough or they invest in the wrong things,” he said.

Higher debt makes it harder for people to save for retirement, said Catherine Collinson, president of the Transamerica Center for Retirement Studies. A Transamerica survey found that a higher percentage of workers cite paying off debt as more of a priority than saving for retirement.

There are plenty of reasons Americans are deeper in debt now than 50 years ago. For one thing, access to easy credit “is much more prevalent than it was 50 years ago,” Collinson said. According to ABC News, Americans now have $1.13 trillion in credit card debt. The amount increased by $50 billion in the last quarter of 2023 alone.

Americans also owe over $1.7 trillion in student loans, 2.5 times more than what they owed just a decade ago, according to the Pew Research Center.

Baby boomers who have reached retirement age are more likely to have mortgage debt than homeowners entering retirement in 2000, according to mortgage loan company Fannie Mae.

For those with debt, it can be hard to find room in the budget to save. But the cycle of inadequate savings and debt is compounded when people raid what money they do have in their retirement accounts to pay for debt, Collinson said. “It’s completely counterproductive to save for retirement, only to take an early withdrawal,” she said.

It’s also harder for people to save for retirement now because they’re living longer. The average life expectancy in the U.S. climbed from 69.77 in 1960 to 77.5 in 2022, according to the U.S. Centers for Disease Control and Prevention (CDC).

The Pew Research Center projects that the centenarian population in the United States will quadruple over the next 30 years.

“People are in retirement 30 or 40 years now, which is a lot longer than before,” said Chris Miller, an investment advisor at Safeguard Investment Advisory Group.

That means nest eggs need to be bigger to last longer.

However, many people are underestimating how long they’ll live in retirement and aren’t saving enough, Miller said.

People also need more money in retirement now than in the past for healthcare costs. One reason is that retiree healthcare benefits provided by employers aren’t as prevalent now as 50 years ago, Collinson said, so retirees must cover more health costs on their own.

At the same time, healthcare costs keep rising — especially for retirees. For example, the average amount a 65-year-old couple who retired in 2016 would need to cover medical expenses in retirement was $260,000, according to Fidelity Investments.

But a couple the same age retiring in 2022 would need an average of $315,000, an increase of $55,000 in under a decade. It pays to learn the retirement survival strategies for rising healthcare costs.

The Fidelity healthcare cost estimates for retirees don’t include long-term care expenses. The increased need for long-term care — because people are living longer — is another reason it’s harder to save for retirement now, Collinson said.

“A couple of years ago, [Transamerica] did a survey of retirees and we found that many retirees financially say they’re living well, but looking at the savings they reported, many are potentially one financial shock away from bankruptcy,” she said. “Long-term care could very well be that shock.”

The annual cost of an assisted living facility is $64,200, and the annual cost of a private room in a nursing home is $116,796, according to the Genworth 2023 Cost of Care Survey. About half of people turning 65 will need long-term care at some point in their lives, according to the U.S. Department of Human Services. However, less than one-third of Americans 50 and older have begun saving for long-term care.

“The way you succeed in retirement savings is by saving early and often so you end up earning interest on interest on interest,” John said. Even small amounts saved can grow into a large nest egg. If you didn’t start saving early, though, that doesn’t mean you can’t do anything now.

Most workers haven’t figured out how much they need to save for retirement. AceYourRetirement.org is a tool built by AARP and the Ad Council to help people planning for retirement ask the right questions and plan for the future.

Take the quiz and learn how to jump-start your retirement planning.

Many employers now offer free financial education and retirement planning information through their workplace retirement plans. “Yet very few employees who have access take advantage,” Collinson said. Taking advantage of this service can help you better prepare for retirement.

Focus on paying off what you owe as quickly as possible so you don’t carry debt into retirement. To avoid racking up more debt — which will make it harder to save for retirement — Collinson recommended paying more attention to how you spend money daily.

“Get in the habit of only spending as needed,” she said.

A long-term-care insurance policy can help offset the cost of care. Another option is a life insurance policy with a long-term care benefit you can tap if necessary, Miller said.

If you don’t end up needing money for long-term care, your loved ones can still receive a payout from your life insurance policy when you die.

“One of the easiest ways to make your retirement money last is to work longer than you initially planned to,” John said. However, you need to take steps now to be able to do that.

Collinson recommends taking advantage of any training programs your company might offer or using your employer’s educational reimbursement benefit to take classes and learn new skills.

Crystal Mayer and Jennifer Taylor contributed to the reporting for this article.