A detailed analysis of defined-contribution plans shows most older employees financially ill-prepared for retirement — and that was before the market crashed.
The analysis is called the 2007 Survey of Consumer Finances (SCF). It was released this year by the Federal Reserve Board, and provides detailed information about household income, savings, wealth, benefits, investment and demographic characteristics of a representative sample of U.S. households.
According to the SCF:
- Nearly 30% of households in the sample have no personal retirement wealth. These tend to be lower-income workers — the DC account or IRA is empty for 52 percent of households in the lowest earnings quintile versus about 8 percent in the highest quintile.
- Even among middle- and upper-income groups, retirement wealth is generally inadequate. No more than 15 percent of households in any quintile have wealth equivalent to four times their annual earnings or more. Converted into a steady income stream, even this level of wealth alone would probably not be sufficient to support a financially comfortable retirement.
- Adding Social Security, which could be sufficient for some low-income households, may not significantly improve retirement prospects for many households above the lowest earnings quintile.
What’s worse is that many older employees seem oblivious to the problem; they think they’re doing OK. That suggests that financial planning is a key noncash benefit employers could provide.
Click here for more info and a chart showing retirement savings among the employees in the test sample.