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Thursday, August 22, 2002

Nancy Coleman, Karen Conner or
Stephaan Harris at (202) 775-8810



Report shows private investments cannot meet retirement needs

The problem of how to finance retirement, which confronts all but the richest few Americans, cannot be solved by shifting to more 401(k)s or other similar private investment strategies. Instead, policymakers should go back to the drawing board to construct a different approach for financing retirement. That’s the message of a new analysis, Retirement Out of Reach, released today by the Economic Policy Institute.

“Those who think we can simply invest our way out of this problem are ignoring the numbers,” said EPI economist Christian Weller, who wrote the study. “Even when stocks were booming, Americans didn’t have enough retirement savings. Now that the stock market has declined, it’s clear that 401(k)s and other private investment strategies will not be enough to get us where we need to be.”

In the 12-page paper, economist Weller reviews recent trends in retirement wealth, analyzing the most current data on Americans’ retirement needs and wealth. His paper assesses the impact of recent stock market declines on the average family’s retirement wealth and gauges that family’s chances of recouping its losses.

“For average Americans, the picture is bleak,” said Weller. “When the stock bubble burst, it left the average family facing the prospect of having only 43% of the income they need for an adequate retirement. For families in the middle, there is virtually no chance that private investments can yield enough to recoup a loss that big.”

Key findings include:

  • Household wealth grew in relation to income during the boom, but not enough for weathering the current market downturn.
  • Most households actually used their new wealth to increase debt and consumption.
  • Between 1992 and 2000, while the stock market grew by 13.9% per year, households increased their debt more than they raised their assets. The ratio of total household debt to income grew from 72% at the end of 1992 to 83% by March 2001.
  • It will take the average household over 30 years to recover the wealth lost in 2000 and 2001.
  • The average household has no statistical chance of amassing enough wealth for an adequate retirement.

“If there’s one lesson to learn from this, it’s that we have to think outside the private investment box when it comes to retirement,” Weller said. “Options worth exploring further are employee-based systems, mandatory savings programs, and direct or matching government contributions, as well as safeguards to further insulate retirement savings from the volatility of the private investment markets. Just as we’ve learned how important it is to diversify a 401(k), we’re now learning the same thing about our overall approach to retirement financing.”

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The Economic Policy Institute is a non-profit, non-partisan economic think tank founded in 1986. The Institute is located on the web at