401(k) Retirement Study Reveals Average Employee Can’t Retire Until 73

(December 1, 2010) Nyhart has released their “Fall 2010 401(k) Retirement Readiness Study” today as part of the firm’s ongoing look at the effectiveness of the traditional 401(k) retirement benefit.

The 6-month study reviewed nearly 10,000 retirement accounts from employees at 110 public and private companies. The study evaluated how contributions to their 401(k), the primary retirement tool for most of these employees, would affect the age at which they could retire.

Key results in Fall 2010 401(k) Retirement Readiness Study include:

• 81% of employees 18 or older will not be able to afford to retire by the age of 65
• The leading cause impacting employees’ ability to retire on time is their failure to contribute enough of their income towards retirement
• Employees above the age of 55 will need to contribute more than 45% of pay through the remainder of their career to retire by age 65. Employees age 45-55 must contribute 19% of pay to retire by 65.
• The average participant, relying on their 401(k) as a primary retirement vehicle, will not be able to retire until the age of 73.
• Most employees age 60-64 will likely need to work until the age of 75 to be able to afford to retire at their current levels of contribution to their 401(k).
• 30% of employees age 24-and-under do not participate in a 401(k) benefit.
• 7 in 10 employees age 24-and-under are not expected to retire by age 65.

“Across all age groups and income levels, the employees who contribute the greatest percentage of income have the best opportunity for retirement,” said Thomas Totten, senior actuary and lead researcher for the study. “The decision of how much an employee contributes to their 401(k) far exceeds the importance of which investment funds they choose. By increasing your contribution by just 2-4% of total income, you can shave years off the age you retire.”

The study is also the first to reveal the impact the economic recession of 2008-2010 has had on consumers age 55 and older who may have expected to retire at age 65. Craig Harrell, a senior retirement advisor and researcher in the study said “Most employees were under-contributing before the recession. With this further dip in retirement balances, if you’re ages 60-64, you have very little time to make up the losses recently incurred. Most employees in this age category will need to contribute as much as 45% of income or plan to work until you’re in your mid-seventies to retire at the level you expected. “