In a startling revelation, a new survey conducted by the Federal Reserve indicates that Americans' retirement savings are falling far short of what is necessary for a secure retirement. Despite a slight increase in retirement account balances from 2018, the median American household is still behind by approximately $470,000.

According to the survey, Americans aged 55-64 have a median before-tax income of $82,000 and $185,000 in their retirement accounts, which is only 2.3 times their income. However, Aon Consulting Group calculates that individuals nearing retirement should have at least eight times their annual income in their accounts. By the time they reach the age of 67, that number rises to 11.1 times to maintain living standards during retirement. This means that the median American household needs an additional $470,000 in their retirement account to bridge the gap.

The solution to addressing retirement shortfalls may seem straightforward on paper: start saving five percent of your paycheck in your 20s, work steadily for 40 years without interruptions or financial setbacks, and avoid withdrawing or taking loans against your retirement accounts. However, the reality is much more challenging. For those who begin saving at around age 40, they would need to save over 26 percent of their gross income each year until age 67 to achieve an 80 percent replacement rate in retirement.

Under the current system, saving enough for retirement becomes nearly impossible for many Americans, leading to a potential humanitarian and political disaster as middle-class individuals face the risk of falling into poverty in their old age.

The shortcomings of the American retirement system are evidenced by its poor ranking in international comparisons. The Mercer CFA Institute Global Pension Index ranks the United States near the bottom among all rich nations in the Organisation for Economic Co-operation and Development (OECD), receiving a mere C+ grade. In contrast, countries like the Netherlands, Australia, and Finland receive grades of A.

While the new Fed report shows a slight increase in the share of households with retirement accounts, rising from 51 percent in 2019 to 54 percent in 2022 (an all-time high for the survey), this means that 46 percent of families still have no retirement savings and are solely reliant on Social Security.

Unfortunately, the American retirement system continues to disproportionately exclude Black Americans. The median value of retirement accounts for Black Americans has declined to $39,000, representing only 39 percent of the median value for white Americans ($100,000). Additionally, participation rates for Black and Hispanic Americans remain significantly lower than those of white Americans.

A key issue with the voluntary retirement system is its uneven participation and tax breaks that predominantly benefit the wealthiest Americans. According to an Economic Innovation Group report, 77 percent of over $279 billion in retirement tax breaks go to the top 20 percent of income earners.

One of the indicators that highlight the failure of the American retirement system is the elder poverty rate, which stands at 23 percent - significantly higher than peer countries like Canada (12.3 percent) and the OECD average (13 percent).

To address these issues, a promising proposal called the Retirement Savings for Americans Act (RSAA) has been introduced. With bipartisan support from both Republicans and Democrats, the Act aims to enhance retirement security by providing universal pension coverage for low- and moderate-income workers. The RSAA would establish portable retirement plans modeled after the Thrift Savings Plan for federal employees.

The legislation builds upon the recommendations outlined in a 2021 white paper authored by a bipartisan team, including Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC), as well as Representatives Lloyd Smucker (R-PA-11) and Terri Sewell (D-AL-7).

Under the RSAA, eligible workers without access to an employer-sponsored retirement plan would be enrolled in an account where they can contribute three percent of their income (with the ability to opt out). Most participants would receive a matching contribution of up to five percent through a refundable federal tax credit, making the plan more attractive and equitable.

These proposed changes aim to create a more secure retirement future for the majority of Americans, regardless of their political affiliation. As concerns about retirement continue to grow among households and elected officials, there is a growing recognition that the current retirement system must undergo bold reforms to better serve the needs of all Americans, not just the wealthiest few.