NEW YORK — The American dream of a blissful retirement, free of financial worries, is dying.
Most U.S. households are heading for a worse lifestyle in retirement than they had while they were working, because they simply aren't saving enough, experts say. Thirty-five percent of households in their prime earning years or later have nothing saved in a retirement account and no access to a traditional pension, according to an AP analysis of savings data from the Federal Reserve.
Among households that do have some savings, the typical amount is just $73,200. That's about 15 months of the median household's income.
One group doesn't have to worry as much: the richest 10 percent of households. They typically have more than $413,000 in a retirement account, according to the analysis of the Fed's latest savings data, which is from 2013.
The rest of us look a lot more like Nancy Harvey, a 54-year-old child-care center owner in Oakland, California, who has less than $2,000 saved despite her decades of work. Her plan for retirement, as of now, is to continue with real-estate classes in hopes that it can provide a second job.
"I have to work and pray and hope my health continues to remain good so that I can continue to work," she says. "I still have a mortgage and all the insurance that goes along with that, and I have to pay payroll for my employees, which is really important to me. I can honestly say I'm frightened about the future."
Harvey isn't alone, as the gap widens between the few households who don't have to worry about a comfortable retirement and everyone else. The anxiety stretches not only across the country but also across political affiliations. Nearly equivalent percentages of Democrats and Republicans say they're not managing very well in retirement planning, a recent survey from Lincoln Financial found.
The looming crisis is the result of a system that's increasingly put workers in charge of saving for and managing their own retirement. Because the U.S. households at the top have reaped most of the income gains over the last decade — and because they have disproportionately more access to retirement plans to begin with — experts say the gap in retirement savings is only growing wider. They're expecting to see more elderly Americans working longer, moving in with their kids and tapping assistance programs.
"Only the privileged have access to a secure retirement," says Teresa Ghilarducci, a labor economist at the New School for Social Research.
The income divide
It's much easier to save for retirement when you're making more money, and the vast majority of the income gains have gone only to the top in recent years.
The top 10 percent of U.S. households made more than $162,180 last year. That's up 6 percent from a decade earlier, after adjusting for inflation.
For middle-income Americans, meanwhile, incomes have only barely stayed ahead of inflation. The typical U.S. household saw just a 0.5 percent increase from 2005 through 2015, to $56,516. Lower-income households are making less than a decade ago.
The benefit of making more money goes beyond having more to save. Higher-income households also get a bigger after-tax benefit from putting money into a 401(k) or another tax-advantaged account, because their contributions would have been taxed at a higher rate than lower-income households'.
And with traditional pensions increasingly becoming extinct, it's grown even more important for Americans to save. Decades ago, workers could depend on getting a set, monthly check into their golden years. In 1979, 38 percent of private-sector workers were participating in a traditional pension plan.
In ensuing years, employers have shifted instead to the 401(k) and similar plans, where workers make their own contributions and handle the investments themselves. Such plans mean lower costs for employers.
By 2013, only 13 percent of private-sector workers were participating in a traditional pension, and most of those workers were participating in both a pension and a 401(k) or similar program. Nearly all employer-sponsored retirement plans — 94 percent — are 401(k)-style programs instead of traditional pensions.
Meanwhile, Social Security — the last line of defense for many retirement plans — is under pressure. With Baby Boomers increasingly tapping the system, Social Security's trust funds are projected to run dry by 2034. After that, the system will be pulling in enough revenue to pay out only 79 percent of scheduled benefits, unless Washington makes some changes.
It's a similar challenge for government pension systems around the world. Many countries have moved their retirement ages up to 67 from 65, and some are looking to move closer to 70, according to the Organization for Economic Cooperation and Development.
Dealing with unexpected shocks
Financial shocks, such as a layoff, broken-down car or a divorce, happen to most of us. Six in 10 households experienced one over a 12-month period, according to a recent study by the Pew Charitable Trusts.
But when such shocks happen, lower-income households are less able to weather them without dipping into retirement savings or halting their contributions. Not only does that drain nest eggs, it also means people miss out on future gains their savings would have earned if they'd remained invested in the stock market.
"When you're out, you can't buy low" says Anthony Webb, research director of the Retirement Equity Lab at the Schwartz Center for Economic Policy Analysis.
Harvey, the 54-year-old child-care center owner in Oakland, California, knows.
At one point, she had built up a nest egg of between $10,000 and $25,000 in 401(k) accounts through prior jobs she had in accounting and sales. About 15 years ago, she started her own business, which she runs from her home.
"Then, I unfortunately went through a divorce, and life happens," she says. She pulled cash from her retirement savings to help pay college tuition bills for her kids and for a car. All the while, even as her business grew, her take-home income remained low enough that she periodically lined up for a free turkey during holiday seasons.
"There's not a whole lot left," Harvey, a member of the Service Employees International Union, says of her retirement savings. "It's basically down to nothing."
Janene Evans, a 53-year-old in Belgrade, Montana, has also missed out on a lot of the stock market's gains in recent years.
She did have a retirement account at one point, saving about $15,000 while working in the payroll department of an Arizona university. But Evans emptied it after she moved to another state in 1998 and couldn't find a job that surpassed her $20,000 annual salary or offered retirement benefits. That means she missed out on the S&P 500's 157 percent return over the last 15 years.
She's now barely getting by on the $1,085 she gets monthly after going on disability two years ago. She doesn't know what she will do about retirement.
"I can't save on $1,000 a month," she says.
Access to plans
The death of the traditional pension means the burden is on us to save, and that's why access to 401(k) and other retirement plans is so important.
David Harraway, 61, and his wife have built up a nest egg that will include nearly $1.4 million in IRAs, $400,000 in cash and almost no liabilities once they finish the sale of a nearly paid-off vacation home.
They did that by consistently putting away at least 10 percent of their income in a retirement plan. Harraway says they also didn't eat out much, didn't vacation lavishly and lived in Colorado Springs, Colorado, instead of a high-cost area. Occasionally they might splurge to see The Who when they toured.
The couple didn't make much money early in their careers, but they recently were making enough to be in the top 10 percent.
Most lower-income households will also save when they have access to a retirement plan. The problem is that most don't get the opportunity.
Eighty percent of high-income working households have access to a 401(k) or similar defined-contribution plan, according to the U.S. Government Accountability Office. For low-income working households, it's just 35 percent.
And it's not just lower-income workers who have less access to 401(k), 403(b) or similar programs. Small businesses are less likely to offer them than big companies. And small businesses accounted for 60 percent of all net new jobs created in the four years following the Great Recession, according to the U.S. Small Business Administration.
"Think about how people save," says Alicia Munnell, director of the Center for Retirement Research at Boston College. "People only save when it's taken out automatically from their paycheck."
So, higher-income households not only make more money to save, they also have more opportunities to save.
The low retirement balances mean the majority of households — 52 percent — are at risk of having to cut their spending by more than 10 percent after entering retirement, according to the Center for Retirement Research. That's even if everyone works to age 65 and turns all of their assets into retirement income, such as by reverse-mortgaging their homes and annuitizing their savings.
"For an upper-middle class person, not being able to maintain their standard of living means fewer trips," says Munnell. "But for lower-income people, it can really mean depriving themselves."
In 1992, the percentage of U.S. households at risk was much lower: 37 percent.
Christian Weller, a professor of public policy at the University of Massachusetts Boston and a senior fellow at the Center for American Progress, paints a bleak picture of retirement for more than a third of the country.
Because of their low savings and lack of a traditional pension, this group of Americans will rely mostly on Social Security for their retirement. He says many will require Meals On Wheels or heating assistance, and they will work into their 60s or 70s even if they have mental or physical ailments.
This group of workers has always existed, and they include many lower-educated and single Americans. But their ranks are growing, as a result of the widening retirement gap. "People who 20 or 30 years ago would have been in the middle, nowadays, they are much more likely to be in the bottom," Weller says.
To help close the gap in worker access to 401(k) and similar plans, states are trying their own measures. California Gov. Jerry Brown signed legislation two months ago requiring employers to automatically enroll their workers in a state-run program and deduct money from each paycheck, for example. Workers can opt out of the program.
Experts say they would prefer a broader fix from the federal government but call the state programs an encouraging step. It's natural for state and local governments to take the lead, because they're under more pressure.
"When the retirement crisis really hits, local and state government will be on the front lines," says Weller. "They provide some of the money, but they also provide the services."
In the meantime, many workers are simply working longer.
David Tucker, for example, is 74 and still waking at 1:15 each morning to get to his job as a skycap at Reagan National Airport outside Washington, D.C. He's worked there 54 years, and he makes $3.77 per hour, plus tips.
He and his wife have saved between $50,000 and $100,000. He also gets $235 monthly from a pension, a benefit earned from one of his first jobs. His wife wants him to retire, but he's worried about having enough to pay the bills, and he doesn't want to take help from his seven children.
He says he's going to keep working, at least until February. Then, he'll consider cutting down to a few days per week or retiring.
And what would he look forward to in retirement? Trips? The beach?
"I would like to feel what it's like to wake up and not go to work," he says. "For a while, that's all I would like to do. I wouldn't worry about anything else."