Econintersect: The latest report from The Center for Retirement Research at Boston College (CRR) reveals a system for retirement savings that was designed to produce an adequate retirement nest egg for a "typical" worker. The report then finds the execution of the plan for 401(k) and IRA retirement savings have only produced about 27% of the retirement assets that the plan should have produced. The failure to perform up to expectations derives partly from unwise choices made by individual workers and part of the shortfall comes from systemic sources.
The latest report estimates where the various portions of a potential retirement find balance projected to be $373k at age 65 typically went. Why is it that the typical account ends up with only a little more than a quarter of what it might have contained?
The graphic below summarizes the study's findings. Right off the top almost 16% of the prospective accounts (provided no losses from other factors occurred) go, on average, to fees. Approximately 21% is lost to "leakages" such as cashouts, hardship withdrawals, early withdrawals and loan defaults. About 19% of the shortfalls come as a result of on-again-off-again plan participation. The final source of failure to match projections derives from early age losses, such as failure to start at age 29 and/or failure to contribute at the assumed rate (6% employee contribution, 3% employer match).
The result is than a median income worker who could have had $373,000 available by start of retirement on average has about $100,000.
The summary of the latest report from CRR:
- The Federal Reserve's 2013 Survey of Consumer Finances provides an opportunity to examine trends in retirement savings over the past few years.
- The good news is increased use of target date funds; the bad news is no improvement in participation rates, significant leakages, and high fees.
- Surprisingly, for working households nearing retirement, median combined 401(k)/IRA balances actually fell from $120,000 in 2010 to $111,000 in 2013.
- Younger households did see rising balances but retirement savings levels are clearly inadequate, and about half of all households have no 401(k) assets at all.
Things may be worse for women than for men. The CRR report does not develop the data by sex of the participant, but previous studies have shown that women are twice as likely to live in poverty during retirement years than are men.
Click on the page below to read the entire CRR report.
- 401(k)/IRA Holdings in 2013: An Update from the SCF - Full report (Alicia Munnell, CRR, September 2014)
- Brief: 401(k)/IRA Holdings in 2013: An Update from the SCF (Alicia Munnell, CRR, September 2014)