The Retirement Income Crisis In America—And What Employers Should Consider
Jeff is the CEO of October Three, an actuarial and consulting firm specializing in modern retirement plan design and administration.
Recently, there have been some assertions that the retirement crisis is overblown. In fact, some refute the very existence (paywall) of a retirement crisis in America because people are working longer and taking Social Security later, which can increase their retirement income; retirees spend less as they get older; and some surveys of current seniors suggest higher levels of self-reported financial security.
This suggests to me that people are working longer, saving less and relying more on Social Security. And those who are currently at or nearing retirement, primarily the Baby Boomer generation, arguably have a more secure financial outlook than coming generations.
Framing the issue as a retirement crisis may be inaccurate. What I believe we do have is a retirement income crisis—and employers have an important role to play in addressing it.
The Erosion Of Americans’ Retirement Income
The traditional philosophy of retirement income in America has revolved around the three-legged stool: employer-sponsored retirement plans, personal savings and Social Security.
Social Security provides a decent safety net for individuals at the lowest income levels. But Americans who must rely on Social Security as their primary source of income are more likely to experience financial insecurity.
For more than 40 years, there’s been a steady shift from employers offering traditional pension plans to employer-based defined contribution plans like 401(k)s. I believe this represents a deterioration of financial security for American workers. Unlike a pension, which is funded solely by employers, 401(k)s shift the burden to employees by making the employee savings leg of the retirement stool a critical component of the employer-provided leg, too.
Employees who can’t contribute to the 401(k) may lose the entire employer-provided benefit if it is based exclusively on an employer match. As a result, not only is the employee-savings leg shaky, but also the employer-provided portion is wiped out too, so two legs of the stool are gone. The result is that these employees would be more dependent on Social Security.
Employer-sponsored retirement is intended to fill the gap between Social Security and an “adequate” core level of retirement income for an individual. Defined benefit programs did this in two ways: They defined a level of income to be provided at retirement, and they provided it as a guaranteed monthly payment, providing more security. As employers moved away from defined benefit programs, I’ve seen uncertainty emerge around whether 401(k) balances would be adequate to provide enough income and how that balance would be managed to achieve financial security.
The Real Issue: Retirement Income Security
In my previous Forbes article, I discussed how the growing number of retirement-aged people remaining in the workforce suggests that the current system isn’t working for Americans.
According to the 4% rule, a retiree needs roughly $2 million to live on $80,000 a year in retirement, plus Social Security. A 2025 Fidelity report found that Baby Boomers, currently between the ages of 61 and 79, have just over $500,000 in retirement savings on average (including 401(k) and IRA balances), while members of Generation-X have less than $300,000 in retirement savings. A 2025 study from Morgan Stanley indicated that 67% of employees surveyed said they are reducing their contributions across all savings accounts.
The Employee Benefits Research Institute’s Retirement Confidence Survey shows 81% of those currently in the workforce were “very” or “somewhat concerned” that the increasing cost of living will make it harder to save as much money as they want for retirement. To me, this shows that conditioning employer-provided retirement on the ability of employees to save and make contributions to the 401(k) does not always keep up with the demands of the modern economy.
Guaranteeing Lifetime Income
Social Security benefits do represent monthly lifetime income payments. However, as noted above, Social Security alone does not provide financial security for most retirees.
And to be clear, 401(k)s can still be valuable as a supplemental savings vehicle, especially if an employee’s company offers an employer match. However, they cannot provide a lifetime income very easily. I’ve noticed activity in the market trying to create products that fill this void. Unfortunately, many of the products being offered aren’t receiving much adoption by participants. From my observations, this is largely due to fees, commissions and other costs, as well as a general mistrust or lack of understanding of annuity products.
Through my company’s work, I’ve been seeing some renewed interest in defined benefit-style plans like cash balance and market-based cash balance plans. Companies like IBM and Southwest Airlines, for example, opted to move all or a portion of the employer contribution to cash balance plans that previously had been made to the 401(k) plan. Like a traditional pension, cash balance plans don’t condition the employer benefit on the amount the employee saves.
Employers Have A Role To Play
While on the surface, the retirement crisis doesn’t appear imminent, I believe there’s a crisis bubbling up underneath that may soon begin to boil over. Given the pressure on Americans’ ability to accumulate personal savings and uncertainty around the future of Social Security, the third leg of the stool—employer-provided retirement—is more critical than ever.
Employers are a crucial part of solving the problem. I recommend examining how you are structuring your retirement spend to make sure your company’s program will provide the best stability, the most predictability and the greatest opportunity for employees. This can ensure your team has the best solution for lifetime retirement income.
If your business provides an employer contribution to a 401(k), a good first step could be familiarizing yourself with additional retirement options that can provide retirees with lifetime retirement income without significant risk to you, the employer. You may be able to pair these options with the existing 401(k) to provide both growth and security for employees.
In my view, employers need to take more responsibility for improving employees’ retirement outlook. And workers should demand a better way to secure their future quality of life.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?