401(k)s Failing Most Americans, Politico Investigation Confirms

401(k)s Failing Most Americans, Politico Investigation Confirms

By David Brandolph

The Pension Rights Center has long made the case that the U.S. retirement system is failing millions of workers who won’t have sufficient income for a dignified and secure retirement, as we’ve been reminding blog readers in recent posts.

Billions of dollars in Congressionally authorized tax subsidies for contributions to self-directed retirement savings plans, like 401(k)s, have disproportionately benefited the wealthiest Americans and widened economic inequality.

Now comes a Politico special report by Benjamin Guggenheim confirming and quantifying the extent to which tax subsidies for retirement savings have benefited the most economically privileged.

“Wealthy taxpayers can protect up to $452,500 . . . in tax advantaged accounts in a single year, saving up to $203,600 on their taxes.”

And, citing a Federal Reserve Board study of the growth of retirement account balances from 1989 to 2022, Politico found that U.S. retirement income policy has caused the rate of “growth in retirement accounts for the wealthiest Americans [to dwarf the growth of those in] other income brackets.”

As Guggenheim noted, “many retirement experts . . . are alarmed by how easily Congress acquiesces to tax breaks for retirement savings that disproportionally help the wealthy while treating the benefits relied upon by most retirees – Social Security and Medicare – as budget busters ripe for reform.”

It’s clear that our policymakers can and must do better to make a financially secure retirement a realistic goal for most hard-working Americans.

To start, Congress needs to stabilize and expand Social Security. It also must develop proposals to increase retirement plan coverage and encourage employers to offer retirement plans with a guaranteed defined benefit – including by authorizing new innovative plan designs.  Redirecting some of the billions of dollars in current tax subsidies for retirement savings—their cost is expected to reach $659 billion by 2027—to benefit low- and middle-income workers is also necessary.

It’s time to begin reversing the dismal reality that an adequate retirement income has become unattainable for most Americans.