The Challenged Landscape of American Retirement

Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

There is significant concern about insufficient retirement savings in the US, increasing lifespans relative to savings and heightened uncertainty regarding the viability of government programs such as Social Security and Medicare. According to the Federal Reserve’s most recent Survey of Consumer Finances, the median retirement savings for people ages 55-64 is only $185,000, and for those 65-74 it is slightly higher at $200,000.

According to the Bureau of Labor and Statistics, the current weekly earnings of full-time workers are $1,197 (ages 55-64) and $1,154 (ages 65-74), respectively, or $62,244 and $60,008 annually.

If an investor is able to earn an annual yield of 4%-5% on a portfolio¹ made up predominately by bonds, retirees can expect to earn approximately $10,000 a year from their savings to help replace or supplement their income. If you add to that the average monthly Social Security benefit payment of $1,783², or $21,396 annually, they would be able to replace only half of their current income without touching their principal if they were to quit working today (assuming those returns are steady, which we all know they aren’t). According to the Social Security Administration, life expectancy in the US is currently 76 years for men and 81 years for women born today. But once reaching age 65, a person can expect to live another 18-20 years. In 10 years, life expectancy will have further increased, and those aged 65 will be expected to live another 19 to 21 years.³

Compounding the issue, Census Bureau data reveals that as of 2020 only 58% of people ages 56-64 even have a retirement account to which the numbers in Exhibit 2 would apply. For younger workers the percentage is lower, though of course that is offset by the fact that they have more time to begin saving.

Retirement Account Ownership Rates in 2020

Social Security is also facing financial challenges, with the Social Security Board of Trustees reporting that they can pay scheduled retirement benefits only through 2033. “At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 79 percent of scheduled benefits.”⁴ If you look at the Old-Age & Survivors Insurance (OASI) Trust Fund and Disability Insurance together, the funds would last until 2035, at which time the fund’s income would only be sufficient to pay 83% of scheduled benefits.⁵

What Does This Mean?

First, longevity increases are, of course, good, but there are implications for the number of workers in the economy and their ability to have adequate retirement savings and Social Security benefits. The labor force participation rate for adults aged 55-64 is expected to increase 3.3% by 2033 from 2023 levels, and 3.5% for those aged 65-74, to levels of 69.1% and 30.4%, respectively.⁶

Second, most Americans have insufficient retirement savings, both in terms of the number of people with retirement accounts, and the savings in those accounts. We looked at the median savings rather than averages here, because there is a larger amount of savings held by those with higher disposable income and so means (averages) are distorted higher.

Third, Social Security benefits will need to be reduced in the near future if nothing changes regarding benefits paid and taxes received. These benefits are a larger percentage of retirement income for those with lower retirement savings. And an across-the-board adjustment would have a meaningful impact on quality of life for retirees and on broader economic activity.

From a policy standpoint, these three factors necessitate changes to retirement savings plans and government policy (to both benefits and taxation), and may have the highest impact for those with existing savings. It is highly likely that government benefits will have to be reduced for those with higher savings, and that taxes will be increased to supplement the benefit programs. Additionally, new programs may need to be put in place for those with less disposable income to save for retirement. Defined benefit plans such as traditional pensions used to fill this role, and there is a growing chorus of people who predict or hope that they will make a comeback. Only time will tell.

ENDNOTES

1. Sample actively managed US Broad Market portfolio yields
2. Monthly Statistical Snapshot, August 2024, Table 2. Social Security benefits, August 2024, https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
3. Social Security Administration, Period Life Expectancy – 2024 OASDI Trustees Report, Table V.A4. – Period Life Expectancy, https://www.ssa.gov/OACT/TR/2024/lr5a4.html
4. Social Security Administration, “A Summary of the 2024 Annual Reports”, Social Security and Medicare Boards of Trustees, https://www.ssa.gov/oact/TRSUM/index.html
5. Ibid.
6. U.S. Bureau of Labor Statistics; Employment Projections: Civilian labor force participation rate by age, sex, race and ethnicity, as of September 6, 2023; https://www.bls.gov/emp/tables/civilian-labor-force-participation-rate.htm

© Western Asset Management Company, LLC 2025. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").

Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.

These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.

Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.

Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.

Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.

These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.

Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Ltda. is regulated by Comissão de Valores Mobiliários; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.