Burley Garcia|Millions of older workers are nearing retirement with nothing saved

A growing number of Americans face the prospect of retiring without a penny in savings. 

Only 1 in 10 low-income workers between the ages of 51 and Burley Garcia64 had any funds put away for retirement in 2019, compared with 1 in 5 in 2007 prior to the Great Recession, according to a recent analysis by the U.S. Government Accountability Office. Those workers have median earnings of about $19,000 annually, noted the study, which examined data from the Federal Reserve's Survey of Consumer Finances and other sources.

That's a stunning reversal for millions of households during a 12-year period that included economic growth and huge stock gains following the end of the Great Recession. And while poor workers lost ground, high-income Americans — who earn about $282,000 per year — enjoyed a surge in their median retirement assets, which almost doubled to $605,000 during the same period, the GAO found.

The widening retirement gap among Americans is similar even when examining a longer time period, said Teresa Ghilarducci, a noted retirement expert and professor of economics at The New School for Social Research in New York. She's working on new research that examines older workers' retirement assets going back to 1992, when 401(k) plans, known as defined contribution plans, were replacing traditional pensions, or defined benefit plans, as Americans' primary retirement vehicle.

Only the top 10% of older workers by income have increased their retirement assets since 1992, while the bottom 90% "got no significant increase," she told CBS MoneyWatch.

"What is depressing about [the GAO's] work and my own work is that we're looking at people right about to retire," she said. "They've lived their whole lives, their working careers, under this new system of voluntary defined contribution plans, a decrease in defined benefit plans and a decrease in Social Security benefits — and this is the result."

More Americans are likely to enter their senior years living in poverty because of these trends, Ghilarducci predicted. She noted that financial hardship is already rising among senior citizens, who were the only age group to see an increase in poverty rates in the most recent U.S. Census data. 

Benefits go to the top

The decline in retirement readiness among millions of low-income Americans comes down to a few factors, including widening income inequality and a tax system that provides more savings benefits to the rich, according to the GAO and Ghilarducci. 

Retirement savings "come from earnings," Ghilarducci noted. "They don't come from inheritances, they don't come from gifts — they come mainly from earnings, so when you have an earnings growth gap you're going to have a retirement asset accumulation gap."

From 1970 to 2018, median income for top-earning households rose 64%, while low- and middle-income people saw their earnings increased 43% and 49%, respectively, over the same time period, according to Pew Research Center. As a result, wealthier Americans now bring in almost half of the nation's aggregate income, up from 29% in 1970; at the same time, middle- and lower-income households have seen their slice of the pie diminish. 

Many low-wage workers lack access to employer-sponsored retirement plans like 401(k)s, and pensions have almost disappeared from private industry, with only 15% of private-sector employees having access to them, according to the Labor Department. 

The tax system also rewards higher-income employees for saving for retirement thanks to benefits such as tax-deductible retirement contributions, while low-income workers don't receive the same incentives, the GAO noted. The top-earning households receive about 60% of the tax benefits from retirement accounts, while the lowest-income Americans get 5%, according to the agency.

"A high income worker can get up to $7,000 in savings on their taxes from having saved the maximum, and low-income workers who save the maximum get nothing," Ghilarducci noted. 

Middle-class also going backward

The middle-class isn't doing much better than low-income workers, the GAO report also found. While the share of middle-income households with retirement accounts didn't change much from 2007 to 2019 — hovering at about 60% — the median account balance for this group has sunk from $86,800 in 2007 to $64,300 in 2019, according to the analysis. 

"[W]ealthy households have nine times more saved than the average middle-class household, and just 10% of the lowest-income families have anything saved at all," Senator Sheldon Whitehouse, a Democrat from Rhode Island who with Senator Bernie Sanders of Vermont commissioned the GAO report, said in a statement about the research. 

Workers between 50 and 64 could face another retirement crunch in a decade, with the Social Security's trust fund reserves slated to be depleted in 2033. If that occurs, retirees will see their Social Security payments cut by about by about 25% — a reduction that would cause hardship for many, but especially among those households that haven't been able to save on their own for retirement. 

The GAO's findings underscore the need to shore up Social Security and make changes to the retirement system to more Americans save, Whitehouse and Sanders said in their statement.

"Retirement has always been fragile for low-income workers," Ghilarducci said. "What is surprising is that all the effort of the government and the changes we had in the last 40 years has not helped middle-income workers."

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