As the cost of living continues to rise, many Americans are finding it increasingly difficult to save for retirement. A recent study by Goldman Sachs reveals that approximately 42% of younger working Americans, including Gen Z, millennials, and Gen X, have no spare savings after covering their basic living expenses. This phenomenon is often referred to as living “paycheck to paycheck,” where individuals struggle to make ends meet, let alone set aside money for retirement.
The Growing Concern of Living Paycheck to Paycheck
The share of U.S. workers living paycheck to paycheck has grown significantly since 1997, when 31% of the population faced this financial challenge. According to Goldman Sachs, this figure is projected to climb to over half of Americans by 2033, as essential expenses like housing and healthcare continue to rise in cost. This trend is particularly concerning, as it suggests that a substantial portion of the workforce will struggle to save for retirement, exacerbating the existing financial pressures.
The study’s findings highlight the difficulties millions of Americans face in making ends meet while also attempting to save for retirement. This financial pinch, which Goldman Sachs refers to as a “financial vortex,” contributes to the alarming reality that over a quarter of older Americans are nearing retirement without any savings. As Greg Wilson, head of retirement at Goldman Sachs Asset Management, notes, “Telling workers just to ‘save more’ ignores the realities they face.” The idea that skipping minor expenses, such as lattes or avocado toast, can make a significant dent in the financial dynamics facing workers today is unrealistic, as basic expenses are consuming an increasingly large share of people’s after-tax income.
The Impact of Rising Expenses on Retirement Savings
For instance, homeownership now accounts for 51% of income, up from 33% in 2000, while healthcare costs consume 16% of after-tax earnings, up from 10% a quarter century ago. These rising expenses make it challenging for workers to save for retirement, particularly as many are now responsible for planning and saving for their own retirement due to the shift from company-sponsored pensions to 401(k) plans. This do-it-yourself approach to retirement savings can be inadequate, as it places the burden on workers to decide how much to save, how to invest, and how to draw down their money in retirement.
Financial professionals argue that it is no coincidence that members of Generation X, who entered the workforce as the shift to 401(k)s became mainstream, are feeling unprepared for retirement. Almost half of Gen Xers believe it would take a “miracle” for them to be able to retire, according to a Natixis study. While some strategies, such as setting aside $500 a year from ages 1 to 20 or adding private market investments to a portfolio, may help boost retirement savings, these approaches may be out of reach for older workers. Additionally, about half of all U.S. private-sector workers lack access to employer-sponsored retirement plans, making it even more challenging to save for retirement.
Strategies for Improving Retirement Savings
Goldman Sachs suggests that workers take advantage of benefits from their employers, such as funding an emergency savings account, to help avoid raiding their 401(k) in case of unexpected expenses. While these strategies may be helpful, it is essential to acknowledge the limitations and challenges faced by many workers. As the retirement landscape continues to evolve, it is crucial to consider the realities faced by workers and to develop effective solutions to address the growing concern of living paycheck to paycheck and the resulting impact on retirement savings.
Aimee Picchi, the associate managing editor for CBS MoneyWatch, has extensively covered business and personal finance. Her work has been featured in national news outlets, including USA Today and Consumer Reports. For more information on the Goldman Sachs study and its findings, please visit Here
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