Finance
Is a retirement savings crisis looming?
Trump donor Norm Champ details how the Biden-Harris regulations have been hurting Americans’ retirement funds on ‘The Bottom Line.’
Tens of millions of private-sector workers lack access to a retirement savings plan through their employer, which experts at the AARP Public Policy Institute warn could pose a significant burden to future taxpayers.
The institute estimates that 57 million private sector workers in the U.S. – about half of the workforce – are not offered either a traditional pension or a retirement savings plan through their employer, a problem that has persisted for decades, according to David John, senior strategic policy adviser at AARP.
In April, an AARP survey showed that 20% of adults at least 50 years old had no retirement savings, and more than half were worried they would not have enough money to support them in retirement.
John said that individuals in their 50s or early 60s who are facing retirement without enough savings are in the midst of a crisis.
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For society as a whole, he said, “It’s not a crisis right now, but it’s pretty inevitable that it will be.”
“It’s a really significant problem, and it’s one that’s going to affect all of us, because if we’re not the ones with the small retirement savings to supplement Social Security, we’re going to be the ones who are paying the taxes to help the people who didn’t have that opportunity,” John said.
An AARP survey showed that 20% of adults at least 50 years old had no retirement savings. (Annette Riedl/picture alliance via Getty Images / Getty Images)
If many people lack adequate retirement savings, they will likely require more forms of public assistance – from nonprofit organizations or government programs. This could include support for health care needs, housing or other essential services.
To help, more than a dozen states have already set up or are in the process of implementing state-facilitated retirement savings plans for small businesses, according to John.
Small businesses are more likely not to provide retirement savings benefits to employees compared to larger corporations. Pew Charity Trusts cited Bureau of Labor Statistics data showing that 57% of private-sector firms with fewer than 100 workers offered a retirement benefit plan as of 2023. However, 86% of companies with at least 100 workers and about 91% of firms with at least 500 workers did.
For small businesses, their main focus is often on staying afloat, leaving little time or resources to handle such tasks. But these state programs, such as CalSavers, California’s retirement savings program for workers who do not have a way to save for retirement at work, are a way to help that does not have any cost to a small business.
More than a dozen states have already set up or are in the process of implementing state-facilitated retirement savings plans for small businesses. (iStock / iStock)
Greg McBride, chief financial analyst for Bankrate, told FOX Business that the bigger issue is that most workers don’t recognize that they can still contribute to a retirement account independently, without relying on their employer.
“Something lost on consumers is that lack of access to a retirement savings plan through your employer doesn’t mean that you can’t save for retirement on a tax-advantaged basis,” McBride said.
If someone or their spouse with whom they jointly file taxes with has an earned income, they are eligible to contribute to an Individual Retirement Account (IRA), which provides tax advantages for retirement savings.
It’s estimated that 57 million private sector workers in the U.S. are not offered either a traditional pension or a retirement savings plan through their employer. (iStock / iStock)
According to the IRS, there are several types of IRAs available, including a traditional IRA, a tax-advantaged personal savings plan where contributions may be tax-deductible, and a Roth IRA, a tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax-free.
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While McBride said the “lack of employee-sponsored retirement savings isn’t a barrier to saving for retirement,” he did acknowledge that it is harder. There is no employee match and there are lower contribution limits for IRAs compared to workplace-based plans, according to McBride.
Still, he doesn’t believe enough workers are taking advantage of these accounts.
The Federal Reserve held interest rates steady at its Wednesday meeting and did not disclose a timeline for when it will lower them. (iStock)
The Federal Reserve is keeping rates steady at its targeted range of 4% to 4.25% and is waiting to see how President Donald Trump’s administration’s tariffs will impact the economy.
For now, Federal Reserve Chair Jerome Powell said that the central bank is in the right place to monitor the impact tariffs will have on the economy before making a decision on further interest rate cuts. For now, the mandate remains the same: get inflation to a 2% target rate. The decision comes even with a negative first-quarter GDP reading. US GDP decreased at an annual rate of 0.3%. This was the first quarter of negative GDP growth since the first quarter of 2022.
“While gross domestic product recorded a mild decline in the first quarter, prompting concerns about a recession, broader economic data underscore ongoing resilience,” the National Apartment Association’s new Vice President of Research, George Ratiu, said in a statement. “The main risk to economic activity is continuing financial pressure on households coming from higher monthly bills, combined with the looming threat of rising layoffs.”
The Fed had anticipated two interest rate cuts for this year, but the impact of how President Trump’s tariffs will play out has derailed this plan. Powell said that the Fed is in a good place to think out policy rates to respond promptly and to potential developments, including rate cuts or holding them steady.
“Despite heightened uncertainty, the economy is still in a solid position,” Powell said at a press conference on Wednesday. “The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2% longer-run objective.”
If you are struggling with high inflation, consider taking out a personal loan to pay down debt at a lower interest rate, reducing your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.
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Mortgage rates won’t budge in time for summer home buying
With no rate cut in sight, housing affordability will remain a central challenge for most Americans, whether they are looking to buy or rent, according to Raitu.
Mortgage rates are likely to remain in the high 6% range they’ve held for the last six months without action from the Fed. Home prices are roughly 50% higher than they were in 2019. That means that with current mortgage rates, buyers are facing a $2,200 monthly payment on a median-priced home.
”The best-case scenario for mortgage rates is to hover just above the 6% mark for the next two years,” said Victor Kuznetsov, Imperial Fund Asset Management co-founder and managing director. “The average American household has adopted a wait-and-see strategy regarding mortgage rates, as they also seek to reduce their monthly consumer spending amid current economic uncertainty.
“The good news is that employment and home prices remain strong, so families will be in a better position to buy or refinance a home in the coming months, especially if rates dip below 6%,” Kuznetsov continued.
Mortgage rates are expected to remain flat through the summer housing market. The Mortgage Bankers Association forecasts that the Fed will resume cutting short-term rates in the year’s second half. “Heading into the Fall, if inflation cools as expected, mortgage rates will begin to dip slowly and steadily, finishing out 2025 around 6%,” Voxtur CEO Ryan Marshall said.
If you want to become a homeowner, you can find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
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Lending picks up despite higher rates
Some buyers aren’t waiting for interest rates to drop, and lending has picked up recently as consumers readjust their outlook and expectations, according to Michele Raneri, TransUnion vice president and head of U.S. research and consulting.
“While the possibility still exists for potential rate cuts later this year, the economic picture is complicated, and it’s too early to know if or when those cuts might happen,” Raneri said. “We’re starting to see some positive signs in lending – mortgages, home equity loans and auto financing are showing signs of life after a slow couple of years.
“However, these gains will likely remain incremental until rates begin ticking down, as many borrowers are reluctant to take on a loan at today’s rates, particularly if they currently have a loan at a significantly lower rate,” Raneri continued.
If you’re worried about the state of the economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.
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