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Retirement Reality Check

With Obstacles Aplenty, Workers in Texas and Across U.S. Struggle to Save for Golden Years
Anna Crockett and Jason Saving
Retirement Reality Check

With Obstacles Aplenty, Workers in Texas and Across U.S. Struggle to Save for Golden Years

December 2020

The economic impact of COVID-19 has dramatically exposed Americans’ lack of financial security, revealing that many low- and moderate-income households are struggling to make ends meet. Some face the very real prospect that their discretionary savings—if they had any—will soon be exhausted.

The government responded with temporary measures, including expanded unemployment insurance and extra benefits for newly laid-off workers, to help individuals keep their heads above water. But such assistance can only go so far in stabilizing family finances. While longer-term concerns like retirement security may be taking a backseat to short-term ones during the crisis, the pandemic underscores how important it is for individuals to invest in their own financial security, particularly for their golden years. Economic shocks can and will happen again.

Even before COVID-19, surveys showed that the personal savings rate was lower than it was a generation ago. People are saving less even though they are living longer. This suggests that they are at least implicitly counting on often-inadequate pensions and Social Security to make up the shortfall between income and expenses in retirement. The gap is especially concerning in Texas, where the safety net is relatively spare, pension availability is relatively low, and the Black and Hispanic populations—which tend to receive lower wages—are relatively large.

With these contributing factors in mind, public and private entities will be challenged as part of the COVID-19 recovery process to address the looming concern of widespread inadequate retirement savings.

Is Social Security Enough?

A recent survey suggests that only one-third of young workers believe they will receive Social Security upon retirement. For perspective, that is lower than the percentage of Americans who believe in psychic phenomena.[1]

Social Security will be there for retiring workers, although it does face some long-run fiscal issues. The combination of smaller families and longer life expectancies has caused the worker-retiree ratio to fall from 5.1 in 1960 to 2.8 today.[2] With that decline has come a substantial gap between the resources Social Security will need in order to provide promised benefits and the payroll-tax revenue needed to fund those benefits. While that gap is an issue, it’s the kind of issue the U.S. has dealt with before (notably in the 1980s) and can deal with again, though not without sacrifice.

What is surprising, though, is that workers haven’t responded to their own concerns about Social Security shortfalls by boosting their personal savings very much. The personal savings rate declined steadily from an average near 14 percent in the 1970s to as low as 3 percent in the 2000s even as Social Security weathered fiscal challenges, and the savings rate has only partially recovered since (Chart 1).[3] A combination of increased fear of financial fragility and COVID-inspired government relief measures have temporarily boosted the personal savings rate during the pandemic; however, few expect this phenomenon to last for long.[4] In February 2020, the month before shelter-in-place orders were enacted, the rate was more typical of the post-Great Recession era at 8.2 percent.

This suggests Americans are still relying on Social Security for most of their retirement financing even as they voice doubts about its availability and adequacy. But should they rely on Social Security as their main or even their only source of retirement income if it falls short of providing a reasonable living standard? The answer to this question sparks others. Why don’t people save enough to make up the difference?[5] Do issues of race and gender contribute to lower-than-average retirement security, with historically marginalized communities earning lower-than-average wages during their working lives? And what do these questions imply for a state like Texas that is more demographically diverse than the national average?

To understand Social Security’s role in Americans’ golden years, it’s important to examine how much the average retiree receives from Social Security. And it is worth noting the significant strides the U.S. has made over time. Before Social Security began, those 65 and older routinely had a poverty rate that was significantly above the national average. Today, Social Security pays $17,535 per year to the average retiree[6]—somewhat above the individual poverty line of $12,760 (Chart 2).[7] Partly for this reason, older Americans now have the lowest poverty rate of any age group.[8]

However, the fact that an average Social Security check places people somewhat above the poverty line does not mean it enables a middle-class lifestyle. The average benefit check of $17,535, for example, only replaces 42 percent of the $41,537 median earnings of working Americans.[9] Even granting that retirees have somewhat lower monthly spending needs than workers, it seems clear that Social Security alone is not enough to ensure a middle-class lifestyle for older Americans. Take into account sudden medical expenses and other financial shocks later in life, and the need for additional savings beyond Social Security is all the more apparent.

The Three-Legged Stool of Retirement Income

Funding retirement requires an understanding of the products available—and the discipline to put money away. In the U.S., workers rely on the three-legged stool of retirement income: employer-sponsored retirement plans, personal savings/assets and Social Security. However, many workers face structural barriers to savings, while others may not have access to 401(k)s and other employer plans.

The Reality of Retirement Savings

One common thread among retirement savings products (see “The Three-Legged Stool of Retirement Income”) is the role government plays in fostering retirement savings. It provides tax benefits for individuals who contribute to 401(k) plans and IRAs as well as for employers that offer certain retirement benefits to their employees. It promotes financial education programs and prosecutes firms that offer fraudulent savings vehicles. And it provides favorable tax treatment for certain assets such as homes on which individuals will rely during retirement.

But another common thread is the expectation that most workers will save some of their personal income for retirement rather than rely solely on Social Security. There are many rules of thumb when it comes to how much one should save. Some young workers are told to save 10 percent of their paycheck each year starting in their 20s. Older workers are often advised to have 10 times their preretirement income in savings by the time they retire. By these standards, a worker earning $36,000 per year would save $300 each month with an eye toward accumulating a $360,000 private nest egg by retirement.

So, how successful are Americans at saving for retirement? According to the Federal Reserve’s May 2020 report based on its Survey of Household Economics and Decisionmaking (SHED), large shares of working Americans not only fail to meet these benchmarks, but a quarter have no retirement savings at all (Chart 3). That figure declines somewhat with age, but even among workers 60 years old and older, 12 percent still have no savings.

Those who do have savings are not necessarily saving enough. Vanguard, one of the world’s biggest investment companies, reported in 2019 that the median account balance was $58,035 for participants over age 65 in its defined contribution plans. This is less than one-sixth of the target level of $360,000 for the individual in our earlier example.

Americans seem to know that retirement savings are far below what rules of thumb would indicate are needed. The SHED survey found that only 37 percent of nonretirees think their retirement savings is “on track” (Chart 4). Younger workers are especially inclined to be skeptical, with only 29 percent of workers age 18–29 perceiving their savings to be adequate. The figures do not improve much with age—35 percent of workers ages 30–44 and 44 percent of those 45–59 believe they are saving enough.

If many Americans are not saving enough for retirement and know it, the next question is why? For some workers, student loans and car payments are more urgent financial stresses and are, therefore, prioritized. Others may perceive, incorrectly, that Social Security will suffice. For low- and moderate-income workers, though, their income might simply be too low for them to meet “nest egg” target amounts.[10]

An often-overlooked piece of the puzzle is gaps in financial knowledge. When asked a set of basic questions, a majority of Americans either didn’t know the answer or were mistaken about basic financial facts such as how quickly interest accumulates and whether mutual funds are more diversified than individual stocks.[11] Studies have shown that traditionally disadvantaged groups disproportionately struggle to answer these questions.[12] This suggests that better and more widely available financial literacy training might be one avenue toward leveling the playing field for retirement.[13]

For Texans, Saving Is More Challenging

By some economic measures, Texas is a microcosm of the U.S. The median household income in Texas, $64,304, is comparable to the median household income of the U.S. ($65,712).[14] In February 2020, before the COVID-19 pandemic hit the U.S. economy, both Texas and the U.S. had a low unemployment rate of 3.5 percent.[15] And life expectancy, an important factor in retirement savings, was virtually the same as of 2015 (78.8 years in Texas and 78.7 years in the U.S.).[16]

However, Texas and the U.S. differ in key ways when it comes to their workers’ ability to save for retirement. If retirement income is a three-legged stool of Social Security, employer-sponsored savings plans and personal savings, that stool is unstable for many Texans.

Texas’ average monthly Social Security benefit for retired workers ($1,472) is only slightly less than the average monthly benefit nationwide ($1,503), though even a small difference can matter to those who rely solely on Social Security for income.[17]

More notably, Texans are less likely to be covered by an employer-sponsored retirement savings plan. While the data are only available with a lag, a 2016 report suggests that 50 percent of Texas workers had access to an employer-sponsored plan, compared with 58 percent of U.S. workers (Chart 5).[18] Among Texans who earn less than $25,000 annually, about a quarter have access to employer-sponsored retirement plans and 16 percent participate. Nationally, about a third at that income level have access and 20 percent participate.[19]

Texans also have a median net worth that is significantly lower than that of Americans as a whole ($70,980 versus $92,110).[20] With less wealth, Texans may find it more difficult to accumulate enough retirement savings (the state’s younger-than-average demographics and large immigrant population likely also explain its lower wealth). In addition, Texas has a higher poverty rate than the U.S., which further inhibits savings.[21]

For low-income Texans, the state’s relatively sparse safety net may also be relevant. Lower-than-average dollar amounts and more-stringent-than-average asset tests for benefits likely play a role in discouraging saving.[22] This is an especially timely issue during the pandemic, with hundreds of thousands of Texans applying for SNAP (Supplemental Nutrition Assistance Program) aid in April 2020.[23] Studies have also shown that Texas’ state and local tax system is more regressive than the national average, with low-income residents paying a higher share of their income and having less reserve for savings.

Some Population Groups Struggle to Save

Texas has a high share of population groups that tend to struggle with retirement savings: rural residents, low-wage workers, people of color and immigrants. For each of these groups, the reasons behind these difficulties often overlap.

Texas is a mostly urban state, with only about 15 percent of Texans living in rural areas in 2010 (the last decennial census year).[24] But a state as big as Texas still has a sizable rural population that should not be overlooked when it comes to retirement. Though the cost of living in rural areas is typically lower than in urban areas, wages are typically lower, too.[25] Lower educational attainment levels could contribute to rural Texas’ lower wages and relatively high unemployment rates.[26] All of these factors can lead to difficulty in saving for retirement.

Texas also has a high share of low-income workers compared with the U.S.[27] This share has grown larger since at least 1979. As mentioned above, these workers are less likely to have access to retirement plans, and when they do, they are less likely to participate in them. Should this trend continue as it has for the past four decades, more Texans will find themselves missing a critical component of the three-legged stool of retirement savings.

Most Texans are people of color, with 40 percent of the population identifying as Hispanic, 12 percent as Black and 5 percent as Asian.[28] Those who are Hispanic and Black especially face economic and financial disparities, including less income, less wealth, higher unemployment rates and a lower likelihood of owning a bank account compared with non-Hispanic whites and Asians.[29] Texas’ Hispanic workers in particular are much less likely to have access to an employer-sponsored retirement plan (37 percent) than Black and non-Hispanic white workers (57 and 59 percent, respectively).[30] The gaps widen slightly when it comes to participation in retirement plans: 28 percent for Hispanic workers, 47 percent for Black workers and 52 percent for non-Hispanic white workers (Chart 6).

Many factors contribute to these disparities, among them relatively high employment in low-margin sectors like restaurants and retail, relatively low high school graduation rates and, in some cases, issues pertaining to immigration status and English-language proficiency. These disparities are in addition to the formal and informal barriers traditionally faced by communities of color.

Addressing the Problem

Data clearly show that Americans are not as prepared as they need to be for retirement. Personal savings are lower than recommended by retirement planners, especially for lower-income individuals and people of color. The situation is particularly challenging in Texas. Social Security benefits, while not noticeably lower in the state than the nation, are relied upon too heavily as the main or even sole source of retirement income. Employer-sponsored retirement plans are less prevalent in Texas, leaving a relatively high proportion of Texans without that source of retirement income.

There are also disparities in retirement readiness across socioeconomic status, race and ethnicity, nativity and gender. Many of these groups have disproportionately contracted COVID-19 or been hard hit by its economic impact. These disparities, if left unaddressed, may only perpetuate economic inequality well after workers are past their earning years.

Factors contributing to this relative lack of preparation for retirement suggest that no single solution can offset the savings shortfalls. Rather, it may take a multipronged approach that includes improving financial education, incentivizing employers to offer retirement plans, redesigning safety-net programs to be more compatible with personal saving, and bolstering postsecondary education so that workers can earn more income.

It is difficult to imagine a successful effort to increase retirement savings in Texas that does not directly address at least some of these issues, especially as the COVID-19 pandemic leaves many low-income families and communities of color with less income or no income at all. Everyone from individuals to policymakers to employers has a role to play in enabling all workers to better prepare for economic downturns and arrive at retirement with confidence.


  1. The Religious Typology: A New Way to Categorize Americans by Religion,” Pew Research Center, Aug. 29, 2018.
  2. Data from Social Security History, Social Security Administration, accessed July 24, 2020.
  3. Personal Income and Outlays: February 2020,” Bureau of Economic Analysis, March 27, 2020.
  4. U.S. Savings Rate Hits Record 33% as Coronavirus Causes Americans to Stockpile Cash, Curb Spending,” by Maggie Fitzgerald, CNBC, May 29, 2020.
  5. For a broad discussion of this issue, see “Why Don’t Americans Save More Money?,” by Derek Thompson, The Atlantic, April 19, 2016. For an economist’s perspective, see “Are You Sure You’re Saving Enough for Retirement?” by Jonathan Skinner, Journal of Economic Perspectives , vol. 21, no. 3, 2007, pp. 59–80.
  6. Data from Annual Statistical Supplement to the Social Security Bulletin, 2019, Social Security Administration, November 2019, SSA Publication No. 13-11700.
  7. U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs,” U.S. Department of Health and Human Services, 2020, accessed July 17, 2020.
  8. 2019 American Community Survey, Census Bureau.
  9. When only full-time workers are included, the median salary rises to $52,000. For more on this, see “Income and Poverty in the United States: 2019,” Census Bureau, 2020, accessed Oct. 15, 2020.
  10. It is also possible that safety-net benefits might discourage some low-income individuals from saving, for example, by imposing asset/wealth tests above which benefits can be lost.
  11. Results from the FINRA Investor Education Foundation U.S. Financial Capability Study,” Financial Industry Regulatory Authority Investor Education Foundation, 2018, accessed July 17, 2020.
  12. For more information on female financial literacy, see “Women’s Financial Security,” Stanford Center on Longevity, Stanford University, accessed July 24, 2020. For more information on African American financial literacy, see “Financial Literacy, Wellness and Resilience Among African Americans,” by Paul Yakoboski, Annamaria Lusardi and Andrea Hasler, Teachers Insurance and Annuity Association Institute, November 2019. For more information on immigrant financial literacy, see “Barriers to Immigrant Use of Financial Services,” by Silvia Helena Barcellos, James P. Smith, Joanne K. Yoong and Leandro Carvalho.
  13. Closing the Financial Literacy Gap,” by Laura Zingg, Teach for America, April 23, 2020.
  14. See note 8.
  15. Local Area Unemployment Statistics, Bureau of Labor Statistics, 2020, accessed June 23, 2020.
  16. Life Expectancy at Birth (in Years),” Kaiser Family Foundation, 2020, accessed June 23, 2020.
  17. Old Age, Survivors, and Disability Insurance Beneficiaries by State and County, 2019,” Social Security Administration, accessed Oct. 15, 2020.
  18. Employer-Based Retirement Plan Access and Participation Across the 50 States,” The Pew Charitable Trusts, Jan. 13, 2016, accessed June 23, 2020.
  19. Who’s In, Who’s Out: A Look at Access to Employer-Based Retirement Plans and Participation in the States,” The Pew Charitable Trusts, 2016, accessed June 23, 2020.
  20. Data are from the Prosperity Now Scorecard, accessed July 17, 2020.
  21. See note 8.
  22. While it is true that TANF (Temporary Assistance for Needy Families) and SNAP (Supplemental Nutrition Assistance Program) exclude retirement savings accounts from their asset limits, personal savings accounts are not excluded.
  23. Texas Families Filing for SNAP Food Assistance Almost Doubled in April,” by Stacy Fernandez, Texas Tribune, May 21, 2020.
  24. Data are from “Urban Texas: Migration Could Become the Most Important Phenomenon Shaping Texas in the 21st Century,” Texas Demographic Center, August 2017.
  25. A Comparison of Rural and Urban America: Household Income and Poverty,” by Alemayehu Bishaw and Kirby G. Posey, Census Bureau, Dec. 8, 2016.
  26. A Report for the Future of Rural Texas: A Texas Tribune Symposium,” Texas Rural Funders Collaborative, 2018, accessed July 17, 2020.
  27. Regional Talent Pipelines: Collaborating with Industry to Build Opportunities in Texas,” by Elizabeth Sobel Blum and Garrett C. Groves, Federal Reserve Bank of Dallas, December 2016.
  28. See note 8.
  29. For more on the role played by financial literacy in these phenomena, see “High School Financial Literacy Mandate Could Boost Texans’ Economic Well-Being,” by Camden Cornwell and Anthony Murphy, Federal Reserve Bank of Dallas Southwest Economy, First Quarter, 2016.
  30. See note 18.
  • Anna Crockett
    Community Development analyst, Federal Reserve Bank of Dallas
  • Jason Saving
    Senior economist, Federal Reserve Bank of Dallas

The information and views expressed in this report are the author’s and do not necessarily reflect official positions of the Federal Reserve Bank of Dallas or Federal Reserve System, nor do they constitute an endorsement of any organization or program.

Full report is available online:


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