Americans' Retirement Savings Gap Tops $4 Trillion

The gap between how much Americans are saving for retirement and how much they ought to be saving has grown to more than $4.13 trillion, according to the Employee Benefit Research Institute (EBRI).

The findings were released last month, ahead of a US Senate committee hearing this month on retirement preparedness.

The survey was based on households headed by people between ages 25 and 64. EBRI says it is further evidence that Social Security benefits are critical to many Americans’ retirement security.

Jack VanDerhei, EBRI’s research director and the author of the report, said the $4.13 trillion figure is based on Social Security benefits remaining as-is. However, given the program’s financial woes, a continuation of the status quo is far from certain. The Social Security Administration’s (SSA) Old-Age, Survivors, and Disability Insurance (OASDI) trust is expected to run out of money by 2033. If that happens, and if Social Security is consequently reduced on a pro rata basis, the savings gap would balloon to $4.38 trillion, EBRI found.

If Social Security were to be eliminated entirely this year, the total savings deficit would nearly double, to $7.87 trillion.

VanDerhei noted that his estimates include an analysis of “longevity risk,” the nursing home and health care costs experienced when retirees live longer. He said it’s critical that those costs are accounted for when assessing the nation’s financial readiness for retirement, because longer life means exponentially higher savings needs.

“Ignoring nursing home and home health care costs in (or assuming another entity pays these costs) decreases the RSS [Retirement Savings Shortfalls] by an average of 74 percent whereas the shortfalls for those in the latest relative longevity quartile average 14.8 times those in the earliest relative longevity quartile.”