A paucity of financial assets among members of the middle class and some saving behaviors threaten many with retirement instability, two recent studies warn.
The National Institute for Retirement Security (NIRS) analyzed data from the Federal Reserve’s 2019 Survey of Consumer Finances on the middle class—which the study defines as those between the 30th and 70th quartiles of net worth—of three generations. The Fed’s study found that the middle class among Millennials (born between 1981 and 1996), Generation X (born between 1965 and 1980) and Baby Boomers (born between 1946 and 1964) possess only a small percentage of their generations’ financial assets:
- Millennials: 14%
- Generation X: 8%
- Baby Boomers: 6%
The study shows that this is how that translates in terms of financial assets:
Middle Class Assets, 2019
|
Demographic Group |
Mean Financial Assets |
Median Financial Assets |
|
Millennials |
$17,802 |
$7,800 |
|
Generation X |
$62,944 |
$39,000 |
|
Baby Boomers |
$93,298 |
$51,700 |
Saving Behavior
Not only are middle class assets modest, another study finds that many Americans’ participation in the retirement plans their employers offer is somewhat wanting. MagnifyMoney says based on a survey of more than 1,200 working Americans, 17% of those who work for employers that offer retirement plans don’t contribute anything to their retirement accounts. Furthermore, they say that 12% of those who contribute do not do so at a rate high enough to qualify of the employer match—which translates to 17.5 million working Americans, they say.
Implications
The findings do not bode well, officials at NIRS and MagnifyMoney suggest.
Wages and asset levels affect participation in a retirement plan, notes MagnifyMoney. They report that in their study, 35% of those who do not contribute any of their compensation to the employer retirement plan fail to do so because they cannot afford to; in addition, 26% of those who don’t contribute already have a plan.
The NIRS notes that given that middle class Baby Boomers had median financial assets of $51,700 in 2019, if one assumes that someone with those assets devotes all of them to paying for their retirement, that person would have an annual income of approximately $2,000. That, they say, would mean that many families would see a reduction in their standard of living.
“In America, the middle class can no longer afford retirement. Middle class Americans face sharp economic inequality, with ownership of financial assets highly concentrated among the wealthy,” NIRS Research Manager Tyler Bond said in a press release. “This means the retirement outlook for many in the middle class is bleak at best.”
Addressing the Problem
The Federal Reserve argues that protecting defined benefit plans and ensuring access to a retirement savings plan through an employer can help members of the middle class be better financially prepared for retirement, Bond notes.
For its part, MagnifyMoney suggests that employers can help improve the situation by increasing the amount of employee contributions that they will match. They argue that more competitive matching could give an employer an edge in recruiting and retaining employees; they report that 49% of those whose employers offer retirement plans would like their employer to increase the match.
