A significant portion of the American workforce, particularly younger generations, finds retirement savings increasingly out of reach as they live paycheck to paycheck, according to a new report from Goldman Sachs. The study highlights a growing financial strain where the rising costs of essential goods and services leave little room for long-term savings.
The analysis, which surveyed approximately 3,600 workers and 1,500 retirees, found that 42% of workers across Generation Z, millennials, and Generation X have no disposable income left after covering basic living expenses. This financial pressure directly impacts their ability to prepare for the future, presenting a major challenge to the conventional wisdom of retirement planning.
Key Takeaways
- A new Goldman Sachs report finds 42% of younger American workers live paycheck to paycheck.
- This figure has increased from 31% in 1997 and is projected to exceed 50% by 2033.
- Rising costs for housing and healthcare are major contributors, consuming a larger share of income.
- The shift from pensions to 401(k) plans has placed a greater savings burden on individuals.
- Approximately half of all private-sector workers in the U.S. do not have access to an employer-sponsored retirement plan.
The Growing Financial Squeeze on American Workers
The financial reality for many Americans is becoming more precarious. The Goldman Sachs study reveals that nearly three-quarters of those living paycheck to paycheck report struggling to save for retirement. This is a marked increase from 1997, when 31% of workers reported being in a similar financial situation.
This trend shows no signs of slowing down. The investment bank projects that by 2033, well over half of the American workforce could be living without any spare savings. This situation creates what Goldman Sachs describes as a "financial vortex," where rising essential costs make it difficult for individuals to escape a cycle of living expense to living expense.
"These findings force us to ask a very critical question: Does the retirement math still work? The answer is no," stated Greg Wilson, head of retirement at Goldman Sachs Asset Management. "Telling workers just to 'save more' ignores the realities they face."
The data supports this conclusion, showing that more than a quarter of older Americans are approaching retirement age with nothing saved. This savings gap is likely to widen for younger generations facing even greater financial pressures early in their careers.
Why Saving Has Become More Difficult
The core of the problem lies in the rapidly increasing cost of basic necessities, which now consume a much larger portion of household income than in previous decades. Simple advice to cut discretionary spending on small luxuries does not address the scale of this structural economic shift.
The Rising Cost of Living
According to the Goldman Sachs analysis, homeownership now requires 51% of income, a substantial increase from 33% in 2000. Similarly, healthcare expenses account for 16% of after-tax earnings, up from 10% just a quarter-century ago.
These escalating costs for non-negotiable items like shelter and medical care leave a shrinking pool of funds available for other goals, including retirement. "The mounting challenges American workers face... make it harder than ever to save for retirement," Wilson added.
The Shift in Retirement Responsibility
Compounding the issue is a fundamental change in how Americans save for retirement. Beginning in the 1980s, the corporate landscape shifted away from employer-funded pensions, which guaranteed a steady income in retirement, toward defined-contribution plans like the 401(k).
From Pensions to 401(k)s
The transition to 401(k) plans transferred the primary responsibility for retirement planning from the employer to the employee. Workers are now largely responsible for deciding how much to save, how to invest their funds, and how to manage withdrawals in retirement. This do-it-yourself model has proven inadequate for a large segment of the population.
Generation X, whose members entered the workforce as this transition was solidifying, is now feeling the effects. A 2024 study by Natixis found that nearly half of Gen X workers, now aged between 45 and 60, believe it would take a "miracle" for them to retire comfortably. This sentiment reflects decades of navigating a system with less of a safety net.
Limited Access and Potential Solutions
While the outlook is challenging, the report notes that some strategies can help improve retirement outcomes. However, many of these solutions are not accessible to everyone, and their effectiveness is limited by the broader economic pressures.
For instance, Goldman Sachs suggests that consistent, early savings—such as setting aside $500 annually from a child's birth to age 20—could boost total retirement funds by 14%. Another suggestion involves adding private market investments to a portfolio, which could also increase returns by a similar margin.
However, these strategies presuppose that families have spare income to invest and access to sophisticated investment vehicles. A more immediate challenge is the lack of access to basic retirement plans.
According to research from The Pew Charitable Trusts, about half of all private-sector workers in the United States lack access to an employer-sponsored retirement plan. While saving is possible without a 401(k), workers without access to such plans reported significant difficulties in building wealth.
The Importance of Emergency Savings
For those who do have access to workplace benefits, utilizing them is crucial. Goldman Sachs emphasizes the importance of employer-funded emergency savings accounts. These accounts can provide a buffer for unexpected costs, such as medical bills or car repairs, preventing workers from needing to take early withdrawals from their 401(k)s, which often come with significant taxes and penalties.
Ultimately, the report paints a picture of a retirement system under significant stress. The traditional formulas for saving no longer align with the economic reality for millions of Americans, suggesting that a broader reevaluation of retirement policy and financial support may be necessary to ensure future generations can achieve financial security in their later years.
