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Americans will never be able to retire – and President Biden is doing nothing to help them

Uncle Sam
Uncle Sam

In just seven years, one in every five Americans will be aged over 65. That is around 73 million people – more than the current population of Britain. The once youthful United States, buoyed by its post-war baby boom and steady flow of immigrants, is greying fast.

Yet for millions of Americans, retirement could be a pipedream. Most believe they need around $1.25m (£1m) to retire comfortably, a study by the financial advice giant Northwestern Mutual found.

But around half of Americans aged between 55 and 66 have no personal retirement funds, and even those that do are still chronically undersaving – the average balance in typical retirement investment accounts for those aged over 65 is $407,581, just a third of the $1.25m benchmark.

In Britain, most people retire when they receive their state pension at around the age of 66. This is a payment from the Government, which you earn a right to once you have built up a 35-year National Insurance record.

Americans have a comparable system, known as social security. Through this programme, people can begin to claim retirement benefits anytime between the ages of 62 and 70, and their payment increases for every month they choose to delay.

This is a major source of income for most American pensioners – for 12pc of men and 15pc of women, social security payments make up 90pc or more of their retirement income.

The average benefit is currently around $1,784 a month, up 8.7pc from last year thanks to an annual cost of living adjustment, or “Cola”. It is the highest uprating since 1981 – but payments vary widely, as they are based on a worker’s highest 35 years of earnings, and then adjusted to account for average wage inflation.

This system, much like its British counterpart, is beginning to creak under the weight of an ageing population. Its trustees have warned that its combined retirement and disability trust funds will be depleted in just 10 years, at which point it will only receive enough income to pay for 77pc of scheduled benefits. The Congressional Budget Office has pegged the date even earlier, at 2032.

Those with private pension savings may be able to retire much earlier, if they are not relying on social security. Most can withdraw funds from 401k plans – a tax-efficient investment account – without incurring a penalty once they turn 55, as long as they have left their job within the year of their birthday. This applies up to the age of 59 and a half, after which point they can withdraw funds, in some cases even if they have not retired.

Rebecca O’Connor, of the provider PensionBee, noted that such an early access age encouraged Americans to engage more with their retirement savings. “It creates more excitement around their pensions, as it gives them more options on how they can spend this money.”

However, an average balance of just over $400,000 suggests that most Americans approaching retirement do not have enough to survive comfortably off these savings. In 2021, the median income for households aged 65 and over was $47,620, according to the US Census Bureau.

While living costs vary, this falls well below the annual salary required for a comfortable retirement in California and Texas, the most populous states, at $90,399 and $60,353 respectively, according to estimates from the American personal finance guide GoBankingRates.

Widespread undersaving means that Americans face much longer working lives: in the decade leading up to 2030, the number of workers aged over 75 is expected to almost double, according to the US Bureau of Labour Statistics.

This will hit the poorest workers the hardest: inequality is especially stark among older Americans – while the Organisation for Economic Co-operation and Development gives the US an inequality score of 0.39 overall, (with 0 being perfect equality, and 1 being perfect inequality), among those aged over 65, it is even higher at 0.41. That compares with 0.3 in Britain and the OECD average.

Relatively low incomes mean that most Americans do not have enough money to fund luxurious retirements. Behind sleep, watching television takes up the most time of an average American retiree’s day, according to data collected by the US Bureau of Labour Statistics.

Ms O'Connor added: “Most of us probably imagine doing something more fulfilling, such as volunteer work. This does not sound like the highest quality of life.”