Although America's post-pandemic economic recovery has been robust by many key measures, it's also increasingly uneven and inequitable.
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With good reason, economists are increasingly referring to it as "K-shaped": Those with more resources are gaining, those with fewer are losing ground, and persistent economic disparities are getting worse. While wage growth for the highest and lowest income earners was strong and roughly equal two years ago, there's now a full percentage-point gap between them. The gender wage gap has reversed recent gains and widened over the past two years to become the largest since 2017. While overall unemployment is a historically strong 4%, Black unemployment has risen significantly over the past four months — from 6% to 7.5%.
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K-shaped contours are even more stark in retirement savings. Despite Wall Street being at all-time highs, the wealthiest 10% of Americans own over 90% of stock market wealth while the bottom 50% own just 1%. Since equities are by far the largest asset class in retirement accounts, this helps explain why the average 401(k) balance for workers making between $30,000 and $100,000 declined slightly over the past few years while the stock market saw a meteoric rise. This doesn't even account for the nearly four in ten Americans who don't own any stock at all.
New research from Dayforce provides an even clearer picture of the large and growing inequalities in retirement savings within the full-time workforce. Our report had two key findings. First, we observed that nearly all gains from the past few years have been realized by those making more than $150,000 a year. Second, we found substantial gaps in participation and savings based on gender, race, age and income — with several moving in the wrong direction.
Take for example the workforce's overall savings rate, which has improved from 8.8% to 9.3% over the past few years. But since 2022, workers making less than $150,000 have seen a decline, with those earning less than $50,000 dropping to just 4.6% — less than half the national average.
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Although combined annual contributions from employers and employees have risen, the gap in dollars contributed annually based on gender, race and income all widened. Today, women save less than $.74 for every dollar that men do, and Black and Latino workers save roughly $.46 for every dollar a white worker does. This same trend applies to participation: While 95% of workers earning more than $150,000 participate in some type of employer or individual retirement plan, just 53% of workers earning less than $50,000 do the same. Nearly 85% of white workers participate compared to just 68% of Black workers and 61% of Latinos. Critically, Black and Latino workers with retirement accounts are also nearly twice as likely to have an active loan than white workers.
How employers can help
There are several steps employers can take to boost the retirement savings of their workforce. The 401(k) plans they offer should have both auto-enrollment and default employee contribution rates that automatically increase with each year of employment. In addition to providing generous or even full matching for employee contributions, they can follow the leads of Amgen, Farmers Insurance and 3M by also providing a guaranteed annual contribution.
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There are also policy changes and benefits that can be particularly helpful in addressing some of the disparities that women, Black and Latino workers, and those who are lower-income experience. Target reduced their 90-day waiting period for new hires to participate in its 401(k) plan, allowing frontline and lower-wage workers to start saving and receiving matching contributions sooner. Starbucks offers 401(k) benefits with matching to some part-time workers, which is critical given the number of women, Black, and Latino workers in the part-time workforce.
Emergency savings play a critical role in boosting retirement savings for lower- and middle-income workers, and employers like UPS offer emergency savings accounts within or alongside their 401(k) plans. Businesses can also provide auto portability benefits to eliminate costly fees for new hires seeking to roll over past retirement accounts into their new plans.
There's little evidence to suggest that these trends and gaps will improve on their own. Today, nearly four in 10 working families won't have the same standard of living when they retire, and a record 80% of Americans now say that retirement insecurity is a national crisis. It's time for employers to adopt new approaches and make new investments to address these growing gaps and help give many more Americans the opportunity to retire securely and with dignity.
