The Washington Post recently reported that for the first time since the 1930s, a majority of Americans are expected to be financially worse off in retirement than their parents. This conclusion, based on research from the U.S. Senate Committee on Health, Education, Labor and Pensions, the New School for Social Research, and Boston College’s Center for Retirement Research represents a historic shift in a country that previously had fostered generations of improvement in the lives of the elderly.

The causes of this transformation are manifold. First, there were long-term factors already eroding the financial standing of aging Americans: an inexorable rise in health-care costs, growing debt among older Americans, and a shift in responsibility from employers to workers to plan for retirement. Added to that was the decline in births after the baby boom decades together with improvements in health care, resulting in a larger number of retirees today than the country has ever faced. The final straw was the so-called Great Recession, which destroyed 40 percent of Americans’ personal wealth while creating a long period of high unemployment and an environment in which savings accounts pay almost no interest. (Although the stock market is approaching record highs again, most of those gains are flowing to well-off Americans who already are in relatively good shape for retirement).

This all comes after a long period of change that improved life for the nation’s seniors starting with the enactment of Social Security in 1935. Universal health insurance (Medicare and Medicaid) was introduced in the 1960s, followed by stronger protections for workers receiving traditional pensions from their employers. These changes arguably helped millions of retirees avoid poverty, while lifting millions of others to prosperous retirements symbolized by vacation cruises, recreational vehicles and second homes, all of which additionally helped to further boost economic growth.

Retirement living standards have been declining for some time, according to the Center for Retirement Research. Using data on household finances collected by the Federal Reserve, they estimated that in 1989, 30% of American workers age 30 and older were unprepared for retirement. That number increased to 38% in 2001, but has spiked to 53% today. Economists worry that the decline in retirement wealth is likely to have far-reaching implications, as an increasing number of retirees may be forced to double up with younger relatives or turn to social-service programs for support, not to mention work longer.

What can be done about this situation?

Senator Tom Harkin, chair of the U.S. Senate Committee on Health, Education, Labor and Pensions, acknowledges the problem and has proposed solutions to what he terms “the breakdown of the traditional ‘three-legged stool’ of retirement security – pensions, savings, and Social Security.” He suggests:

• Saving for retirement should be universal, easy, and automatic
• People should have a reliable source of income in retirement
• Individuals, employers, and government all need to share the responsibility
• Retirement assets should be pooled and professionally managed

Unfortunately, any proposals these days to further expand government benefits are overwhelmed by concern about the nation’s fast-growing long-term debt, which has left many policy­makers focused on ways to trim Social Security and other retirement benefits rather than increase them.

What can we as individuals do? Currently four out of five private-sector workers with retirement plans at work have only 401(k)-type defined contribution accounts, rather than traditional pensions that pay retirees a fixed benefit for life. Numerous studies have found that workers with defined-contribution accounts often put aside too little money, make too many withdrawals, or employ the wrong investment strategies to save enough for old age. Making better financial decisions in these areas can result in much better outcomes. Saving 10 percent or more of your pay into your retirement account, for example, will yield much better results than the 3 percent that most companies set aside.

The retirement savings shortfall is revealing an economic divide separating those who are well prepared for retirement from those who are not. And if you are one of the lucky ones, keep in mind that in many countries where the middle class has disappeared or bifurcated into rich and poor, the rich end up being forced to live in armed camps behind fences and barbed wire for protection. It’s to everyone’s benefit to ensure that all Americans are able to enjoy a healthy and comfortable retirement, and it starts with all of us planning for it as early as possible and making good financial decisions as we work towards it.