Half of employed households are at risk of falling short of saving for retirement, and it will take more than just increasing contribution rates to substantially reduce that figure, said a new brief issued by the Center for Retirement Research at Boston College.
The brief, titled "How Would More Saving Affect the National Retirement Risk Index?" said that although increasing the contribution rate for participants in 401(k) plans will mitigate the problem, it won't substantially move the needle. What needs to happen is that in addition to increasing contribution rates for 401(k) plans by 5 percentage points, the retirement age needs to be extended.
In other words, 401(k) plan participants need to save more and work longer.
Assuming the availability of a retirement savings plan for all employees in the U.S., the brief said a 5-percentage-point increase in contributions would reduce the National Retirement Risk index for all households to only 44% from 50%.
But if the retirement age in the NRRI went to 67 from the current assumption of 65, the percentage of households at risk would be cut by more than a third, the brief stated. Combine this with increasing the contribution rate to 401(k) plans, and the percentage of at-risk working households is cut in half.
"The only way to make a dramatic dent in the retirement risk problem is to combine saving more with working two years longer," the brief states. "This option reduces the NRRI by more than half, lowering the percentage of today's working households at risk to less than 25%."