Great wealth transfer or retirement savings crisis? It can be both

It can feel like the U.S. economy has divided consumers into groups of haves and have nots — and retirees are no exception.

Research has found a great wealth transfer is underway, with research and consulting firm Cerulli Associates estimating an $84 trillion to shift from older to younger generations through 2045. Yet other experts say a retirement savings crisis may be brewing for some who have not set aside enough for their elder years.

Both dynamics are at work, according to Chayce Horton, senior analyst at Cerulli.

“That wealth transfer is going to take place on a less-than-widespread basis,” Horton said.

“There’s been a significant amount of wealth that’s been created, and that wealth is concentrated in fewer and older hands than it has been in a long time,” he said.

Covering the cost of retirement has gone up, as inflation has made health and long-term care in retirement more expensive. A 65-year-old single individual may need to have about $157,700 to pay for health-care costs in retirement, Fidelity estimated in 2023. An average 65-year-old retired couple would need about $315,000.

“Those costs have grown substantially to the point where a lot of people are going to die with nothing to pass on,” Horton said.

Those costs — combined with low retirement balances — have prompted some to say there is a retirement savings crisis underway.

A majority of Americans — 79% — said there is a retirement crisis, up from 67% in 2020, a recent survey from the National Institute on Retirement Security found. More than half (55%) said they are concerned they will not have financial security in retirement.

The average overall 401(k) balance was $125,900 in the first quarter, according to Fidelity Investments, with a record total savings rate of 14.2% including employee and employer contributions.

Yet those numbers do not include the roughly half of Americans who do not have access to workplace retirement savings accounts.

To force everyone to save, mandatory savings plans that require participation from all individuals may be the answer, Teresa Ghilarducci, professor of economics at The New School for Social Research, said in a Thursday interview on CNBC’s “Squawk Box.”

“We know that the most important financial power in our markets is the power of compound interest,” said Ghilarducci, author of the book, “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.”

“Getting people in early into a pension plan is the only way they can have enough savings at the end of their working lives to supplement their Social Security,” she said.

Data shows a forced savings approach works, said Ed Murphy, president and CEO of financial services provider Empower. For those who earn $35,000 to $50,000 who do not have a workplace retirement savings plan, they’re likely not saving anything.

Once members of that cohort have access to workplace savings through a payroll deduction, up to 90% will save, he explained.

“We’ve got to get more people saving through the workplace,” Murphy said. ” It’s just the most effective means to get people to save.”