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It’s a financial-planning axiom that’s become virtually sacrosanct: you’re probably not saving enough for retirement. Starting as young as possible, you should scrimp and save and sacrifice like your future life depends on it—because it does. Given that Americans believe they need $1.26 million to comfortably retire yet only half of all households have any retirement savings at all, the advice may seem on point. But what if we’ve got it all wrong?
Over the last fifty years, the United States has been conducting a vast, largely accidental financial and social experiment. Individual retirement accounts like the 401(k) have become the backbone of our retirement system, and they’re poised for yet further expansion. But there’s increasing evidence that our current approach is not only economically inefficient but also a key contributor to the precarity and isolation unraveling the social fabric.
Retirement is a relatively recent concept. For most of human history, it was impossible to amass enough food or wealth to sustain oneself for years, let alone decades. Most people worked until they died. As they aged, they shifted to less demanding roles and relied on family and community support. When industrialization fractured traditional support structures, societies began experimenting with alternative systems, and the beginning of retirement as we know it—an institutionalized post-work period—was created in 1889 in Germany by Otto von Bismarck. An early champion of the “Golden Years,” the Iron Chancellor argued that elderly citizens “have a well-grounded claim to care from the state.”
President Franklin Delano Roosevelt concurred, and the United States passed the Social Security Act in 1935, creating one leg of the “three-legged stool” that Americans came to depend on after their prime working years: Social Security, corporate pensions, and personal savings. For decades, this stool supported Americans reasonably well. Then two things happened: first, people started living longer, and second, the 401(k).
Initially exploited by bank executives to reduce taxes on bonuses, the 401(k) was introduced as a minor provision in the tax code in the late 1970s. As traditional pensions began to wobble under the weight of longer lifespans, companies adopted the 401(k) as a way to shed obligations, save money, and offload risk. Within a decade, the 401(k) had supplanted pensions as the dominant form of retirement saving. In place of collective, guaranteed payments to retired employees, retirement security came to hinge on the amount individuals invested and how well those investments performed.
On the face of it, this didn’t look like a bad tradeoff. Generous tax breaks, employer matching, and decades of rising markets made the 401(k) look like a winning proposition. Yet fifty years on, with traditional pensions all but gone and Social Security in danger of shrinking as soon as 2033, the legs of America’s retirement stool are being kicked out one by one. What was once a balanced system of collective and individual support has come to rely on a single, unreliable leg. As a result, almost eight out of ten working-age Americans believe the nation faces a retirement savings crisis, and 64 percent of Americans are worried more about running out of money in retirement than about dying.
The conventional wisdom says the solution is simple: save more, save sooner. Congress continues to expand the 401(k); investment companies and fintech firms attempt to gamify saving; financial coaches tout budgeting and financial literacy. Instead of buying coffee out or splurging on avocado toast, the advice goes, redirect that money into your retirement account. Cook for yourself. Replace your streaming subscriptions with a library card, or better yet, a side hustle. Thanks to the magic of compound interest, whatever you save will be worth eight times more by the time you retire.
My dad used to have a quote taped above his desk: “Never resist a generous impulse.” Americans are now taught exactly the opposite. The guiding philosophy is a personal-finance mercantilism: parting with money = bad; saving money = good. On TikTok, which has emerged as a leading source of financial coaching, the popular phrase is “Pay yourself first.” Assorted “financial independence” approaches have proliferated—from FIRE (Financial Independence, Retire Early) and geo-arbitrage (where you uproot your life to move somewhere cheaper), to passive-income schemes. The get-rich-quick schemes that characterized a more hopeful era of American capitalism have been replaced by “one weird trick” proposals for holding on to your wealth and just surviving. They’re compensating behaviors in a system that no longer works.
While it’s true that people should save what they reasonably can, we’ve lost sight of the forest for the trees. A retirement system that compels individual hoarding for the future distorts how we live and relate to each other here and now.
Fewer Americans give to charity today than at any point in modern history. Certainly, factors like the cost of living and declining religious affiliation play a role. But so does the message that we must save every penny or face destitution. As social analyst and philosopher Ian Corbin observes, Americans today experience a pervasive “gut-level sense of precarity; the feeling that I am alone, that I could fall, and fall hard, and there would be nothing and no one there to catch me.” The 401(k) embodies this transformation, pushing all risk downward onto individuals. Humans evolved in cooperative groups, not as isolated financial units. Requiring each person to save enough to support themselves on their own until they’re one hundred years old encourages a way of living inimical to a thriving society.
The shift in giving and saving hurts everyone, not just those who might otherwise be on the receiving end of charity. People who give live healthier, happier lives. This is true whether you’re high- or low-income. And generosity isn’t just a personal virtue—it’s one of the most powerful ways we build and sustain community. Sharing a meal, giving a gift, contributing to a local cause—these acts create bonds of trust and care. They also spread, rippling through social networks and workplaces, making communities stronger and even making individuals more attractive as friends and partners.
But when a scarcity mindset predominates and every dollar must be socked away for future survival, people become more narrowly focused and less civic-minded. We enter a downward spiral where increased isolation leads to less giving, which weakens social bonds and deepens isolation. Research shows the consequences: people embedded in strong social networks are healthier and happier, while chronic loneliness is as unhealthy as smoking a pack a day.
It doesn’t have to be this way. In many cultures, saving and social connection go hand in hand. My company has worked on financial wellness projects around the world. On a research trip in Indonesia, we met a woman living on a modest income who attended more than thirty weddings each year, bringing gifts to each one. These weren’t small affairs—each typically had hundreds of guests, all bearing gifts. Wedding expenses consumed a significant portion of her budget, while emergency or retirement savings were virtually nonexistent. When we asked about saving for the future, she looked puzzled. “What do you mean?” she asked. “My community would take care of me.”
In our work, we consistently see that lower-income households rank retirement savings as less important than helping family, contributing to local causes, or supporting neighbors. According to research from the Urban Institute, for example, Black households in the United States—which on average have lower incomes and wealth—contribute a significantly higher percentage of their wealth to charity than other groups. Much of this giving flows through churches, which serve as community and social-support hubs.
When it comes to retirement saving, lower-income households tend to save a significantly smaller percentage of their income than higher-income households. That’s because saving for retirement isn’t just a financial decision, it’s a cultural one. They often see retirement saving as a form of spending on oneself, at odds with caring for others. Pushing people to prioritize individual saving may actually encourage withdrawal from the kind of social spending that builds community. We’re trading robust social arrangements for financial products, community for compound interest.
Although it’s tempting to point the finger, the current state of affairs isn’t attributable to straightforward malintent, bad actors, or even mercenary self-interest. Of course, financial institutions collect billions in fees managing Americans’ retirement accounts, and they’ve built one of the most well-heeled lobbying machines in Washington (in the words of one tax expert, “The 401(k) industry owns Congress”). But the dominance of the 401(k) is more attributable to inertia and lack of imagination than some sort of malevolent master plan. As pensions disappeared, 401(k)s became the only game in town.
Policymakers are understandably hesitant to disrupt the system. 401(k)s are no longer merely a saving tool; they’re a pillar of the capital markets. At over $38 trillion in 2023, the retirement market is greater than the national debt. When millions of Americans keep automatically buying in and leaving their funds there for decades, it helps bolster valuations, smooth volatility, and keep markets liquid.
But saving for retirement need not further atomize us while subsidizing Wall Street and immiserating the less fortunate during their final years. Amid growing recognition that the current system isn’t working, a few policymakers are attempting to chart a new path forward. The Retirement Savings for Americans Act (RSAA) is a bipartisan proposal supported by Sens. John Hickenlooper (D-Colo.) and Thom Tillis (R-N.C.) that would create a government-sponsored retirement account for workers without employer-provided plans. Although the RSAA includes a 401(k)-style match, it also has a one-percent automatic contribution for workers earning below the median income—a small but important shift. Meanwhile, last year, Sen. Bernie Sanders (I-Vt.) held a Senate hearing on the retirement crisis, and this July he introduced the Pensions for All Act, which would require corporations to offer their employees a traditional pension equivalent to the one offered to members of Congress. Like the RSAA, which has been introduced twice before, the Sanders proposal is unlikely to succeed. Both ideas have valuable aspects, but to get them through Congress, we need to advance solutions that balance economic security and free enterprise, and that provide compelling options to all Americans, rich and poor.
First, we should recognize and support informal systems of retirement security. These could include tax benefits for multigenerational households, credits for family caregivers, and programs that help community groups such as congregations implement mutual-aid networks. Rather than pushing everyone to rely solely on individual savings, new policies should strengthen the social fabric that has traditionally helped support the elderly while bringing people together in the process.
Second, we should explore approaches to retirement saving that better pool risk. The current system forces each person to save as if they’ll live to be one hundred, leading to massive over-saving by some and no saving at all by others. We should explore new annuities or defined-contribution plans similar to traditional pensions but organized by region or affinity group rather than employer. They could reduce the amount each person needs to save while providing more predictable benefits and alleviating feelings of isolation and insecurity.
Third, we should reform retirement tax incentives so that they’re both fiscally responsible and promote behaviors that benefit society. The government is expected to spend $659 billion on retirement tax breaks in 2027. Eighty-four percent of those benefits currently go to the top two income quintiles, and loopholes like the “Backdoor Roth” cost the government billions in lost revenue (Peter Thiel has over five billion tax-free dollars in his Roth IRA, a savings vehicle intended for people making less than $150,000). We should eliminate wasteful loopholes and explore programs that provide retirement income to all Americans.
Finally, we should shore up Social Security rather than letting it wither. Social Security taxes currently only apply to the first $176,100 of an individual’s income, a shortcoming Democrats have railed against. Especially amid rising income inequality, which will exacerbate this funding gap, the Social Security tax should be extended to all earnings. Republicans and prominent business leaders have also proposed raising the retirement age to reflect changing life expectancies. Perhaps by combining both approaches we can better devise policies that support people who are unable to continue working while also rewarding people who continue paying in for longer.
Our accidental retirement system, pressed into service as a replacement for traditional pensions, is warping how we live, how we give, and how we connect. It’s time to design a retirement system that aligns individual security with social cohesion.
