Americans Have $38 Trillion of Retirement Savings. This Expert Says You Need More

Did you know how much money Americans currently have saved for retirement? It's $38 trillion. This vast number includes $25 trillion in 401(k) plans, traditional pensions, and annuities, and $13 trillion in individual retirement accounts (IRAs).

But even though Americans' total retirement savings add up to an incomprehensibly big number, that doesn't mean we all have enough saved for retirement. In a recent interview with Bloomberg, economist Teresa Ghilarducci explained why $38 trillion isn't enough for Americans to retire.

Let's look at a few big reasons why Americans need more retirement savings.

1. Many Americans don't have a 401(k)

If you have a 401(k) or other tax-advantaged savings plan at work, your experience isn't the norm -- most Americans do not get a 401(k) plan as part of their job. In fact, 83 million workers do not have a 401(k) or other employer-sponsored retirement plan.

Just by having a 401(k), you're part of a fortunate subset of people within the U.S. economy. With a 401(k) plan, your company can offer an employer match (if it chooses to do so) for a portion of your savings. And the government gives you a tax break on your 401(k) contributions -- the money you put into your 401(k) gets subtracted from your taxable income upfront.

And most people who use a 401(k) tend to be the workers with the highest incomes. As Ghilarducci told Bloomberg, under our 401(k)-based retirement savings system, "...the government’s responsibility is to give a tax deduction to an employee that happens to save. Well, who are those workers? They’re the highest-paid, and they have the best employers. The tax deduction -- the government’s responsibility for savings -- is only going for the very top. So that 80% of our $270 billion that we spend, that the government spends, on retirement savings is going to the top 20%."

What you should do: If you have a 401(k) at work, use it -- and put in enough to get the full employer match, if it's offered at your job and you can save that much. If you don't have a 401(k) at work, you can put money into a traditional IRA (with tax-deductible contributions) to get a similar tax break.

2. Social Security needs more funding

The 401(k) plan was originally created to supplement Social Security income in retirement. Many people think they can retire on Social Security alone -- but they might not realize a hard fact: Social Security only replaces about 40% of the average retiree's pre-retirement income.

Since most financial experts recommend replacing 80% (or more) of your pre-retirement income to have a "comfortable" retirement, that means Social Security is only giving Americans about half the retirement income they need.

Sometimes financial advisors will tell people "don't count on Social Security," but America has the ability to fix it and make the program more generous.

Ghilarducci said to Bloomberg, "The fix for Social Security is to put more revenue in it. We are past the point where we can fix Social Security by cutting benefits. That’s a nonstarter, because the benefits for Social Security are keeping almost all of the people on it above the poverty level."

One challenge for funding Social Security is that the money comes from payroll taxes paid by today's workforce, and only on income up to a certain level. Instead of cutting benefits, Ghilarducci recommends taxing capital gains or raising other tax revenues to help fund Social Security. If Congress does not take action to fix Social Security, it is currently on track to run out of money by 2033 -- which would force a reduction in benefits for current (and future) retirees.

What you should do: Don't be fatalistic and assume that Social Security is going to collapse; Americans may find the collective will to make the math work to fix Social Security and keep taking care of each other and ourselves in old age. But also look for ways to save extra money for your own retirement. Use a traditional IRA or Roth IRA (if you qualify), or a taxable brokerage account to invest for your future.

3. American retirement savings plans are complicated

Another critique of 401(k)s is that they're complicated. These plans force average people to make a lot of crucial decisions about investing, even though people might not understand the difference between an ETF and a mutual fund. Most 401(k) plans make people choose whether to participate, how much money to contribute, how to invest the money, and more.

In America, everyone with a 401(k) has to act like they're their own professional investment manager -- even if they have no formal training. As Teresa Ghilarducci said to Bloomberg, "We have a system that’s not aligned with the capabilities of the people that have the most responsibility."

What you should do: As much as possible, automate your retirement savings and investing. Target date retirement funds will automatically invest your money in a diversified portfolio of stocks and bonds that is appropriate for your age and retirement goals. If you use a brokerage account or IRA, consider using a robo-advisor to recommend a diversified portfolio for you, based on your age, goals, and risk tolerance.

Bottom line

Solving America's lack of retirement savings (even with $38 trillion) won't be easy, and it will require complex negotiations and public policy compromises. But if you have a 401(k), use it -- get your full employer match. Save what you can for your own retirement with IRAs and brokerage accounts. And use automated investment tools like robo-advisors so you don't have to go it alone.