Data and Research

Employer-Sponsored Retirement Plans Generating Less Income

By Rebecca Moore | March 14, 2017
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The research found retirement income at projected retirement ages as a percentage of wealth for those ages 51 to 56 in households with a plan was 12.5% in 1992 and 11.7% in 2010.

Given the growth of DC wealth and the disadvantages of annuitizing that wealth, one might have expected an even greater decline in the ratio of retirement income to current retirement wealth, the researchers note. They explain that the main reason the ratio did not decline more is that overall retirement ages have been increasing, and the difference in the retirement age between those in DC and DB plans has been getting larger. “Later retirement ages, all else equal, produce more annuity income per dollar of retirement savings because payout periods are shorter for people who work longer. Indeed, if the analysis had instead assumed that everyone retired at 62 over the entire period, the ratio of income to wealth would have declined much more sharply,” the paper says.

The researchers concluded that employer-sponsored plans are providing less income today than in the past. They suggest this outcome could be improved by making 401(k) plans work better through auto-enrollment, auto-escalation of default contribution rates, and reduced leakages; and expanding coverage to workers whose employers do not offer a plan.

The full issue brief may be downloaded from here.