Why most Americans may face an ugly retirement

America’s retirement crisis is looking especially dire. 

More than 66 percent of workers with access to 401(k)s and other defined-contribution retirement saving plans aren’t using them. That’s according to recent research from the Census Bureau, which analyzed tax records to estimate how workers are actually participating in these plans. On top of that, only 14 percent of companies offer these types of retirement plans, far lower than previous estimates, the analysis found. 

The findings underscore the size of the looming retirement crisis, partially exacerbated by a decades-long shift away from traditional pensions to 401(k)s, which are cheaper for employers to manage because they shift more costs onto workers. 

The fact that only one-third of employees with access to 401(k)s are saving for retirement highlights one of the chief criticisms of the programs. Because these plans are voluntary, many workers procrastinate socking away money for their golden years. 

“It’s surprising and disappointing that fewer people are saving than we thought,” said NerdWallet investing and retirement specialist Arielle O’Shea. “This is reliable data. They’re looking at tax records. It’s a stark picture of what we are doing to prepare for retirement.” 

The Census analysis, from researchers Michael Gideon and Joshua Mitchell, is based on tax records from almost 155 million individual workers and 6.2 million companies filed in 2012. Most earlier estimates of retirement plan participation rely on survey data, which can be less accurate because people can misreport data given faulty memories or lack of knowledge.

The low percentage of employers that offer 401(k)s was especially noteworthy, O’Shea said, since previous estimates pegged the number at about 40 percent. “That is a significant problem,” she said. 

Americans who work at companies with retirement plans may be failing to save because they don’t know about the option, or because many employers bar employees from participating until they’ve worked at the company for a period of time, such as six months or a year. That can get workers out of the habit of saving for retirement, which O’Shea noted should be looked at as a monthly expense like rent, rather than discretionary spending. 

“It’s difficult when you have a paycheck and you make the decision, ‘I am going to reduce my paycheck now for something that’s way off,’” she said. “That waiting period knocks people off their game. If they could sign up from the start, it would become the norm.”

Given that more Americans are relying on gig economy jobs or may not have access to employer-sponsored plans, Americans need to take it upon themselves to save money for their retirements, she added. A first step is to check a retirement calculator, such as one on NerdWallet’s site or through investment companies such as Vanguard or Fidelity. 

It can feel insurmountable to begin a saving plan when money is tight, but she recommends starting small, such as socking away just 2 percent or 3 percent of your annual income. When you get a raise or bonus, increase your contributions. 

“Take small steps, and increase it when you can,” she said. “Small steps help, and they make you become used to saving money.”

Still, for some Americans living on bare-bones budgets, saving for retirement can be tough. It’s no coincidence that the Census analysis found Americans with higher incomes were more likely to be socking money away for their old age. That dovetails with other data, such as the Federal Reserve’s annual survey on household finances, which found that almost 9 out of 10 Americans with more than $100,000 in annual income have a 401(k), compared with just four out of 10 earning less than $40,000.