Are we still just saving for retirement like it’s going to work?

This country doesn’t have a retirement plan for most of us, so we have to rethink what “retirement” means in our lives

“But, I mean, we have to save for retirement, right?” goes a common question from readers of my book You Don’t Need a Budget.

You’re on board with nixing the budget. You’re on board with ending debt shaming. You’re on board with embracing generosity. You’re on board with acknowledging the suffocating impact of capitalism on our lives and ending the narrative that poor people are to blame for their own financial strife.

But that chapter about investing gets to you. Sure, the system is a nightmare — public corporations are demonic, and profit-seeking is nauseating — but what are we supposed to do about retirement? “Given the reality” always makes its way into the conversation: Yes, our lack of social safety net is troubling, and it’s absurd that health and comfort in the last quarter of our lives depends on our capacity for hoarding wealth, but given the reality, what do you advise people do about retirement?

To start, I advise nothing. I’m not a financial advisor, coach, counselor or anything remotely positioned to provide advice, especially about retirement planning or investing. As an educator and journalist, I share information and guide conversations, and I hope to help you think differently about money than our culture has generally taught you to think. Disclaimer, disclaimer, disclaimer…

So, here’s some information: The reality we are given is that our system of retirement planning is working for almost no one.

How we plan for retirement in America (and why it’s so effing stupid)

The dominant vehicle for retirement planning in the U.S. is a tax-advantaged investment account. We shovel a portion of our paychecks into investments, an act that’s incentivized through income tax deductions.

Most modern-day retirement plans are defined-contribution plans, which means you contribute a set amount periodically, but the amount you receive when you retire isn’t guaranteed. Your money goes into an investment account, so it’ll probably grow over the years with the market, but you risk losing your savings if the economy goes haywire (see: 2008).

Until about the 1980s, workers with access to a workplace retirement plan usually had a pension that was a defined-benefit plan. That means they’d get pre-established payments upon retirement. Employers made the contributions to these plans, and they took on the risk so workers were guaranteed their promised benefits.

It’ll come as no surprise to anyone who knows the last 40 years of our economic history¹ that the shift from defined-benefit to defined-contribution began around 1980, as corporate employers found as many ways as possible to shift risk from their own balance sheets and onto those of American families.²

Some employees, mostly union and public sector workers, still have access to defined-benefit pensions, but even many pensions have become defined-contribution plans to shift risk away from state governments and onto public workers.

The most common modern retirement plan is the employer-sponsored 401(k) (you might have a similar plan called a 403(b) if you’re a public educator or nonprofit worker). But it was never designed to replace pensions — it wasn’t even originally used for retirement planning! Congress added section 401(k) to the Internal Revenue Code in 1978 to allow for “deferred compensation” that wasn’t immediately taxed, and the first use of it was to reduce the taxes some bank executives paid on big bonuses.

By the late 1980s, employers realized they could make this plan available to more employees and shift the burden of retirement planning. The plan also benefitted from the growing individualism in our culture at large. As John Csiszar explained for GOBankingRates, “employees generally wanted it.” They liked being able to choose how much to contribute and where to invest (even though the typical American has very little knowledge about the stock market and is strongly advised not to make granular investment decisions).

Of course, maybe workers were more willing to forgo their defined-benefit plans in the late 80s because they expected to be supplemented by our country’s public retirement plan: Social Security. In the late 80s, the Social Security trust fund was strong, and its ability to pay out its obligations would grow stronger for the next 20 years. That’s not true anymore. The fund’s ability to meet its obligations has been dropping since 2010, and estimates expect it to be unable to pay out full earned benefits within the next 10 years.

Because the system has come to rely so heavily on individual safety nets, personal finance experts promote them unquestioningly. They like to make you feel foolish if you don’t contribute to a workplace 401(k) or other tax-advantaged retirement plan. Simple math presents these plans as a no-brainer because of the lifetime taxes you can save (as if most of us are measuring our money in lifetimes).

Not contributing to a 401(k) might also mean forfeiting an employer match, the one remaining contribution private employers make. Rather than shouldering an employee’s full retirement, as companies did in the era of defined-benefit pensions, they now offer a contribution equal to a tiny percentage of your salary — but, often, only if you also contribute that amount first. Experts frame this match as “free money,” but let’s call it what it is: a percentage of your compensation held hostage unless you conform to a set of expectations.

This shift only benefits employers: 27% of workers with access to a 401(k) don’t contribute at all, according the Bureau of Labor Statistics. That leaves most of their companies off the hook for contributions, too. Some employers won’t even let you enroll in the plan until you’ve been with the company for months or years; instead of creating an environment workers want to stay in, they trap you there with the threat of lost compensation. That’s truly a hostage situation.

This system isn’t working for anyone

The problem with relying on individuals to fund our own retirements? We can’t do it — we’ve never been able to do it.

A report by the New York Fed in 1993 found only 65% of eligible workers participated in their company’s 401(k) plan. That take-up rate was up to 73% in 2024 per BLS, but not all workers have access to a plan. Just 53% of workers overall contribute to a retirement plan, and many of those aren’t saving nearly enough.

As of 2024, boomers, the first generation to have access to 401(k)s for their whole working lives, have saved on average 12% of what they expect to need in retirement, according to Northwestern Mutual 2024 Planning & Progress Study. Note that the youngest boomers turned 60 last year; this generation is well into their retiring years.

No one is very surprised that millennials and Gen Z are worried about retirement. We’ve inherited a top-heavy economy that leaves most of us little room to plan the future. Many of us, however, imagine baby boomers to have inherited a miracle economy and benefited from their generation’s corporate pilfering of America. But this generation is as unprepared for retirement as the rest of us.

Many of us imagine baby boomers to have inherited a miracle economy and benefited from their generation’s corporate pilfering of America. But this generation is as unprepared for retirement as the rest of us.

This won’t shock you: Income is a major determinant of retirement savings. Low-income workers are far less likely to have access to a workplace retirement plan, are less likely to contribute if they do and contribute a smaller percentage (of a smaller paycheck). The 1993 report from New York Fed found “high-income groups receive a disproportionate share of the tax benefits from 401(k) plans.” Yes, of course — the rule was designed to do that from the start!

Financial media and educators can shout all we want about the importance of saving in tax-advantaged retirement accounts. We can reveal the most optimal ways to use complex products like Roth accounts (a 1997 addition that created an absolutely bonkers tax loophole for rich investors). We can code up calculators to help you see all the “free money” you could get by maxing out an employer match and sucking up compound interest for 40 years.

Given that Social Security benefits are waning (and the program was never set up to fully fund retirement, anyway), none of this is bad advice. It’s just not useful. 47% of workers either don’t have access to a retirement plan or can’t afford to contribute to it. The vast majority of workers don’t contribute close to what experts glibly recommend. All of us face a future with ever-increasing costs, ever-shrinking social supports and tenuous access to even private insurance. Who, exactly, is retirement planning advice for if no one can follow it?

As the Fed report said (emphasis mine), “Low-income workers are…more likely to be liquidity constrained and therefore have better uses for their funds than retirement saving.”

Americans can’t afford to save for retirement. Yelling at us to just save more will never change that reality.

So what, exactly, do we do now?

The United States has never created a viable retirement plan. Before Social Security, we ignored older and disabled Americans who couldn’t work for income. Even with the program implemented, benefits haven’t fully funded retirements: The income replacement rate peaked at just over 50% in 1980 and has been dropping ever since, around 37% now. Experts say you need to replace about 70% of your working income to live comfortably in retirement.

As corporations gained power and unions lost it, leaving workers without a voice, we stopped holding companies accountable for the lives of their workers in old age or disability. The cost of living and health care have risen astronomically in these same 40 years, and wages have effectively stagnated.

“It seems like the amount of money that would be needed to retire in 30 years is absurd and unreachable,” Healthy Rich reader Cody Norris said on the topic. “Are we still saving what we can or saying fuck it?”

Norris echoed the thoughts of a lot of us who are being beaten over the head with advice to save but know how steeply the odds are stacked against any kind of success or comfort in our futures.

I responded to Norris’s question in a piece for Salon last year — but, frankly, there’s no satisfying answer.

The solution to the near-universal problem of finding comfort in an American retirement lies in policy changes, not individual grit and responsibility. As I wrote for Salon:

Adjusting the income cap for Social Security taxes would better fund that program and help increase the payouts from public funds. Reinstating union protections could bolster workers’ ability to negotiate for employer-funded pensions. Enacting universal health care (and related supports like in-home care) would reduce the cost of living in old age. Policies that rein in the cost of housing would make saving more feasible during our working years.

In the meantime, our best option seems to be to shift how we define retirement. In other words, we have to get over the idea that we’ll stop working in our 60s and live out our golden years in RVs and on golf courses. That life was never meant to be available to the working class, and striving for it might make us unnecessarily sacrifice comfort and security now.

Financial planner Maura Madden told me for Salon that she helps her millennial and Gen X clients reframe how they think of work and retirement. “It's more of a shifting process of your life and how you work…Instead of saying, ‘How much do you need to save right now,’ oftentimes we're playing with, ‘How long are you going to have to work?’”

I added:

This shift in thinking isn’t fully satisfying — many people will continue to work full-time or part-time past retirement age purely out of financial desperation. But it might be just enough to relieve the millions of American workers who panic when they’re told how much they should have saved for retirement by now.

So when people meet me with incredulity and say, “We have to save for retirement, right?” I say… sure. We do. But we’re not.

In this way, retirement savings looks a lot like budgeting. Everyone thinks we must do it. Most of us are not doing it. For a few people, bucking up and following some budget culture rules could tip them over the line into financial stability — if you have plenty of resources and can’t seem to stay on top of your bills, maybe a budget could help you get things in order? But if you don’t have enough money or brain space for money management in the first place, a budget won’t change a thing.

Retirement planning is no different. For a few people, learning how to rollover a 401(k) and optimize a Roth IRA might turn uncertainty into financial security. But most of us aren’t even close to that line. This country simply doesn’t have a retirement plan for us.

We have to stop thinking of retirement the way our culture defines it, because that culture doesn’t offer us a way to achieve it.

If some future of our government makes it feasible, we have to fight for policy changes that make retirement available to everyone. In the meantime, we have to take Madden’s advice and reframe what work means for us — because it looks like it’s going to be part of our lives for a pretty long time.

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Buy You Don’t Need a Budget on Amazon or Bookshop.

1. If you don’t, here’s a great primer from Money with Katie!

2. Am I directly quoting Jacob Hacker in The Great Risk Shift here? Not certain; the book made a big impression on me during my research for YDNAB, and it’s kind of implanted in my brain now. Citing just in case!