Got employees who hope to retire around age 65? If so, it looks like they’ll need to find a way to sock more money away.
Of the 10,000 401(k) plan accounts studied from 110 companies in a recent research project by actuarial and benefits consulting firm Nyhart, 81% of employees 18 or older won’t be able to afford to retire by the age of 65 — if they plan to rely solely on their 401(k).
The main reasons:
- Employees just aren’t contributing enough to their 401(k)s, and
- The impact the recession had on the investments of those 55 and older.
“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,” said Thomas Totten, the lead researcher for the project.
The research also found that as a result of the recession’s impact on employees’ investments, those 55 and older who are relying solely on their 401(k)s will need to contribute more than 45% of their pay on average through the remainder of their careers to retire by 65.
Some other findings:
- Employees age 45-55 will have to contribute 19% of pay on average to their 401(k)s in order to retire by 65
- The average employee, who relies solely on his or her 401(k) to save for retirement, will not be able to retire until 73, and
- At their current levels of contribution, workers age 60-64 will need to work until 75 on average to have enough saved to retire.
Info: For a deeper look into Nyhart’s research, click here.