Research Finds Many Not Benefitting from 401(k)

Only top 20 percent make gains in retirement savings

A new study noted by MoneyWatch stated that 401(k) savings account plans are no longer adequately providing individuals with the retirement nestegg necessary, and is part of the growing inequality within the nation.

The report that stems from the Economic Policy Institute illustrated that the shift in pensions to individual savings is a major source of negative effect on retirees. Authors found that the wealthiest who benefit most, do so because they can contribute the the 401(k) at high enough margins for a positive effect.

“401(k)s were never designed to replace pensions for most workers. They serve primarily as a tax shelter for high earners,” said economist Monique Morrissey, the report’s co-author, in a statement. “The 401(k) revolution has been a disaster, yet some policymakers are calling for cuts to Social Security, which will be the only significant source of retirement income for most Americans–if they are able to retire in the first place.”

Some important finding included that households that earn in the top 20% attributed 72% of the total savings in retirement accounts, and were the only group that actually noted savings in such accounts.

Defined-benefit pension participation for workers between 25 and 61 has steadily declines for 10 years. From 52% in 2000, the number dropped to 45% in 2010.

Single individuals and minorities had no savings in retirement accounts. Those who did not hold college degrees suffered the same outcome. Meanwhile, white had more than six times the savings as blacks or Hispanics. Those who do hold college degrees also had 600% more in their savings.

The report made this claim: “Retirement-income inequality has grown in part because most 401(k) participants are required to contribute to these plans in order to participate, whereas workers are automatically enrolled in defined-benefit pensions and, in the private sector, are not required to contribute to these plans. Thus, higher-income workers are much more likely to participate in defined-contribution plans. In addition, higher-income workers have more disposable income and a higher investment-risk tolerance, receive larger tax breaks, and are more likely to work for employers that provide generous matches.”


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