Retirement Savings: Why the Middle Class Is Lagging Way Behind the Wealthy

Senior couple paying their bills.
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In the pursuit of a comfortable retirement, new data suggests that the economic divide between the middle class and the wealthy in the U.S. is widening.

A recently released report by the Government Accountability Office (GAO) highlights significant disparities in retirement savings over the past decade, reflecting broader issues in income distribution and financial security in the country.

Stagnation vs. Growth

From 2007 to 2019, while high-income households saw their median retirement savings almost double, jumping from $333,000 to a whopping $605,000, the middle-income households weren’t so fortunate. Their median savings remained stuck around $64,300, a stark contrast that underscores the financial vulnerability of many middle-class retirees. This means that high-income households have about nine times more saved for their golden years than their middle-class counterparts.

A Glaring Lack of Savings

Moreover, the GAO report draws attention to the staggering number of Americans — particularly in the lowest income brackets — with no retirement savings. As of 2019, 90% of the lowest-income older households lacked any savings earmarked for retirement. This alarming figure has only grown, as in 2007, 21% of the same demographic reported some retirement savings, but by 2019, this proportion plummeted to just 10%.

Senator Bernie Sanders commented on these findings, stating, “At a time when half of older Americans have no retirement savings at all, it is unacceptable that taxpayers are forced to spend billions of dollars subsidizing the retirement accounts of the wealthiest people in America.” Sanders goes on to emphasize the necessity for working-class Americans to retire with dignity, rather than continuing to provide tax incentives to the very wealthiest.

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Racial Disparities Persist

Beyond income disparities, racial divides continue to mark retirement savings. In 2019, 63% of white households reported retirement account balances. In contrast, only 41% of households from other racial backgrounds could say the same. Even among those with savings, white households typically had double the retirement funds, with a median balance of $164,000, compared to $80,300 for other racial groups.

Workplace Retirement Access: A Key Issue

Workplace retirement accounts play a pivotal role in shaping these disparities. The access to such accounts dramatically differs across income groups. High-income older households, for instance, are three times more likely to have such accounts than their low-income counterparts (75% vs. 23%).

A Skewed Tax Code

One of the primary drivers behind these disparities is the structure of the U.S. tax code. In 2022 alone, the tax code offered $195 billion in tax breaks to encourage retirement savings. However, the distribution of these breaks is highly skewed. A 2021 Congressional Budget Office study indicated that over 60% of these benefits went to the top 20% income households, while less than 5% reached the bottom 40% of households.

The GAO’s findings, built upon previous reports, paint a troubling picture of the future of retirement in the U.S. As the gap continues to widen between the wealthy and the middle class, there’s an increasing need to re-evaluate the nation’s approach to retirement savings, ensuring that every American has an equal opportunity for financial security in their later years.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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