​How inequality is worsening the retirement crisis

The gap between the top 1 percent of American earners and everyone else will play out for years to come, thanks to its impact on retirement savings.

Income inequality is wreaking havoc with the ability for low- and middle-wage earners to put money aside, according to a new report from the National Institute on Retirement Security. While the rich have always been able to put money away, the past five years of widening income inequality means that fewer low-income Americans today even have a retirement account.

Income inequality is hitting the future retirements of poorer Americans in two ways: Fewer today have retirement accounts than just five years ago. Meanwhile, those households that have retirement accounts such as an IRA or 401(k) have seen their retirement assets rise by 25 percent to $50,000 since 2010. Those without retirement accounts, who tend to be low or medium-wage workers, have seen their retirement assets shrink 17 percent to only $2,500 in the same period, the study noted.

"Due to a longterm trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of working households cannot meet even a substantially reduced savings target," the report's authors noted.

With slow wage growth added into the problem of growing inequality, the typical family is finding it harder than ever to put money aside for their golden years, the report noted. It added, "The retirement crisis is getting worse."

The statistics are sobering: 45 percent of American households don't have retirement accounts. Almost two-thirds of Americans who are between 55 to 64 years old (and are therefore approaching retirement) have less than one times their annual income socked away, which the report notes is far from what they'll need to maintain their standard of living.

Interestingly, these trends are emerging at a time when retirement assets are actually hitting record highs. The combined values of 401(k) accounts and IRAs reached a high of $11.3 trillion at the end of 2013, yet that's benefiting higher income Americans, who have had the ability to set assets aside as well as to gain access to retirement plans through their employers.

The rising tide of retirement investments, in other words, is far from lifting all boats. "The typical American household was further behind in retirement readiness in 2013 than in 2010 and 2007," the study noted.

One example: Take a look at the breakdown of retirement account ownership by household income quartile. It's important to note that this isn't reflecting the assets in those retirement accounts, but simply that these households have an account. Only five years ago, 26 percent of Americans in the bottom income quartile had retirement accounts. That's now fallen to 21 percent.

Meanwhile, 76 percent of those in the second-highest income quartile own retirement accounts, up from 72 percent in 2010, the study noted. For the highest quartile, the percentage has stood at 90 percent since 2010.

"In other words, retirement accounts are sharply concentrated in the top half of the income distribution," the report said.

Given that Americans are even less prepared for retirement today than even in 2010, public policy decisions that strengthen and stabilize the retirement system may help avert a looming disaster. Strengthening Social Security, which makes up 90 percent of income for the bottom 25 percent of retirees, could help, the report noted.

"The challenges faced by vulnerable populations have spurred calls to expand [Social Security] benefits," it said. "One proposal calls for increasing minimum benefits for lifetime low-wage earners, while another addresses the special challenges women face in their role as caregivers that result in fewer years in the labor force."

Aside from strengthening Social Security, the retirement system could be tweaked to help low- and middle-wage earners gain access to retirement plans, such as automatic enrollment and payroll deduction.

Without changes, it's likely the country will face "grave consequences," such as increasing demand for public assistance, the report said.

It added, "The 'American Dream' of retiring after a lifetime of work will be long delayed, if not impossible, for many."