Households approaching retirement had lower 401(k)/IRA balances in 2013 than 2010, a brief from the Center for Retirement Research at Boston College said.
The Federal Reserve’s 2013 Survey of Consumer Finances reported that the typical working households approaching retirement (ages 55 to 64) had $111,000 in 401(k)/IRA balances compared to $120,000 in 2010, the brief said. In contrast, households with residents between 45 and 52 years old reported balances of $100,000, up from $70,000 in 2010. Households with residents between the ages of 35 and 44 year old reported balances of $48,000 in 2013, up from $35,000 in 2010. Furthermore, only about half of U.S. households have 401k/IRA balances.
Alicia H. Munnell, director of the Center for Retirement Research at Boston College and author of the brief, said she was “shocked” by the decline in households approaching retirement and thought economic and stock market gains since 2010 would have resulted in higher balances.
To build higher balances and an efficient 401(k) system in the future, auto enrollment for existing and new employees, automatic increases in the default contribution rate and starting default contribution rates at a “sensible” level should be considered, Ms. Munnell said.
One explanation for the decline could be that the Federal Reserve’s 2010 survey respondents “were in denial about the impact of the financial crisis on their balances,” the brief said. The aggregate retirement savings reported by the Federal Reserve in 2010 surpassed the 401(k)/IRA balances reported by the Investment Company Institute in 2010 by 13% but “virtually” matched in 2013, according to the brief.
Fees are an obvious contributor to this gap. However, leakages and irregular contributions also play a role, Ms. Munnell said.
“Ripping (the 401(k)) system apart and starting again is not sensible. We need to make it work as well as possible,” Ms. Munnell said. “We do have the tools.”
