1 of 3 retiring workers to have no nest egg

401(k)-style accounts elude many, GAO says

December 12, 2007|By MarketWatch

WASHINGTON -- More than 1 of every 3 workers at retirement age in the 2050s will have nothing saved in a 401(k)-style account, according to a government study released yesterday.

On average, workers born in 1990 will save enough to replace about 22 percent of pre-retirement income, or $18,784 per year in 2007 dollars, according to the Government Accounting Office.

"Today's workers will more likely struggle to make ends meet during retirement than previous generations," said Democratic Rep. George Miller of California, who had requested the report.

"While Social Security faces long-term challenges that must be addressed, this GAO report makes it clear that the real retirement security crisis is the lack of savings in private retirement plans," Miller said.

Several factors

The projection of low savings in the 401(k)-style, defined-contribution plans could be due to factors such as working for employers that don't offer a plan, choosing not to participate or withdrawing savings before retirement, the GAO said.

Defined-contribution plans, which contained almost $3.3 trillion in assets last year, have become increasingly prevalent over the past 25 years, the GAO said.

Participants in defined-contribution plans grew to 64.6 million in 2004 from 20 million in 1980, according to the report, while participants in defined-benefit plans, such as traditional pensions, rose to 41.7 million from 38 million during that same time period, the report said.

Experts have different views about how much individuals should save to have enough for retirement, it said.

"We may define retirement income adequacy relative to a standard of minimum needs, such as the poverty rate, or to the consumption spending that households experienced during working years," the report said.

"Retirees may not need 100 percent of pre-retirement income to maintain living standards."

A report last month from the Employee Benefit Research Institute found that the percentage of all workers participating in an employment retirement plan decreased to 39.7 percent in 2006 from 40.9 percent in 2005 -- fueled partly by a decrease in full-time, full-year workers.

"It may take a significant tightening in the labor market [like the one that occurred in the late 1990s] before the percentage of workers participating in an employment-based retirement plan significantly increases," according to Craig Copeland, the report's author.


The Employee Benefit Research Institute report found certain characteristics were associated with a lower level of participation in a retirement plan.

These variables include being nonwhite, younger, female, never married, having a low education level, lower earnings, poorer health status, no health insurance through an employer, not working full time and not working a full year.

Other factors were working in service occupations or in farming, fisheries and forestry jobs.

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