Just 36 percent of workers had savings in 401(k) or similar retirement plans in 2004, with participation practically disappearing among the lowest-paid workers, the Government Accountability Office reported last week. For those who had such retirement savings, the typical account balance was $22,800, the study found.
Policymakers increasingly are focusing on the adequacy of 401(k) and similar savings plans because they have become more common than traditional pensions, which guarantee set monthly payments in retirement.
The study was based on a Federal Reserve survey of consumer finances, using 2004 data. Among the weaknesses it highlighted:
- Low-income workers are largely left out of the 401(k) system.
- Savings levels often are not sufficient to finance retirement. The typical account balance rises to $50,000 for workers between 55 and 64. But a 65-year-old who bought an annuity with this amount could get just $4,400 a year in income, researchers said.
- Account balances often are reduced by pre-retirement spending. Of the 21 percent of plan participants who had gotten lump-sum distributions from a former employer, 47 percent cashed out completely and 4 percent spent part of the money.
The study found that, under current trends, 401(k) and similar plans will be able to replace an average of 22 percent of the income of workers who retire in the middle of this century. That figure is far below the 70 percent to 80 percent often recommended by financial planners for a comfortable standard of living in retirement.
Source: The Los Angeles Times