Rich or poor, workers win if firms prod them to save
EBRI research director Jack VanDerhei found that 86 percent of low-income people with 401(k) plans are doing what they need to do with those accounts to eventually cover a basic bare-bones retirement. In the highest-income group, 83 percent are on course.
The EBRI think tank used a database of 24 million Americans with 401(k) plans and assumed their saving practices will continue for 30 years. Also, those who appear on course will have only enough for basics like food, housing and heat — nothing extra. To provide that kind of retirement, a person puts away enough over a lifetime of savings in a 401(k) to replace 60 percent of what they were earning annually on the job at age 64.
VanDerhei said Americans with 401(k) plans are doing better in building savings now than they were years ago because after 2006, many employers began to provide target date funds — an easy way for people to invest money without being overly cautious or overly risky based on their age. People choose a fund with the year they will retire in the name. Then fund managers invest a lot in stocks when people are young, and as the person ages, they reduce risks by investing less in stocks and more in bonds.
The people who have been pushed by employers through automatic contributions to 401(k) plans are the best positioned for their future. According to the EBRI research, 94 percent of low-income workers and 88 percent of the highest-income quartile with the activist employers will be able to replace 60 percent of their income in retirement. About 85 percent of lower-income people and 73 percent of higher-income earners will be able to replace 80 percent of their pay in retirement.