401 (k) plans may not last long enough in retirement

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Older Americans may have a number of different goals with their retirement savings. But usually their main goal is the same: to make it last.

Unfortunately, many younger baby boomers and members of subsequent generations who do not have access to traditional retirement can survive the funds in their 401 (k) accounts, a recent study from the Center for Retirement Research at Boston College found.

Economists compared withdrawal rates between those with traditional pensions and those with only 401 (k) savings accounts. Although most of the research on how long pensioners’ money lasts is based on the former category, the majority now fall into the latter.

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“What most people have had the chance to observe were people with traditional pensions,” said Gal Wettstein, a senior research economist at the Center for Retirement Research at Boston College, noting that 401 (k) workplace retirement plans did not become widespread until the 1980s.

These analyzes based on retired pensioners showed that they often did not use their savings at all. In fact, so many of their nest eggs continue to grow after they stop working.

“However, this song wine idea from the past can give a false sense of security,” Wettstein said.

Retirees with 401 (k) s often use savings quickly

Access to traditional pensions has been rare for decades now. Workers have increasingly been tasked with saving for their later years on their own on investment accounts, the poster child that has been the 401 (k) plan offered through employers.

The researchers found that these plans are being emptied much faster than expected.

One example in the analysis looked at households that retired with $ 200,000 in savings. At age 70, retirees who had a 401 (k) plan but no pension had $ 28,000 less than retired retirees, according to their analysis – a difference that makes up one-eighth of the original balance. At age 75, 401 (k) savers had $ 86,000 less than those who had retired.

“People spend a lot of what they have when they have a 401 (k),” Wettstein said.

The rapid withdrawal of savings in 401 (k) accounts means that many retirees who depend on them may be at risk of using up their money at the age of 85, even though about half of them will live beyond that, in the study.

Although they will still receive their monthly social security checks, Wettstein said, “there is usually not enough compensation for their career-level income.”

Pensions helped with “how much you could afford”

Due to the relatively new nature of 401 (k) plans, more still needs to be known about why retirees are using down accounts so quickly, Wettstein said.

Nevertheless, some of the causes can be assumed. Those who had a traditional pension, which guarantees a fixed monthly payment until death, probably had to spend less of their savings because of the reliable income. They may have been able to keep their savings for inheritance purposes or in case of unexpected expenses later in life.

We did this as a first look at whether we should be concerned.

Gal Wettstein

a senior research economist at the Center for Retirement Research at Boston College

On the other hand, many retirees without a pension depend on their own nest egg to cover much of their monthly expenses. Without a pension, people are also responsible for making sure they have saved enough to get through the years of working life, a task that requires decades of adequate earnings and discipline.

In addition, a challenge with 401 (k) savings plans is that they burden retirees with figuring out how much they should take out each month. This calculation can be difficult to hit correctly, and although those with significant savings aim to make a living from their money, the market is unpredictable and has periods – such as right now – where it requires more than it provides.

“One of the advantages of the pension system was that it assured you how much you could afford to spend, practically, in that it would never run out, and in a wise sense also, because it says” Here you can spend so much, for next month you will get the same amount again, “said Wettstein.” A 401 (k) does not give you that. “

Wettstein stressed that it is still too early to get a complete picture of how successful 401 (k) accounts are in keeping people in retirement.

“But we did this as a first look at whether we should be concerned,” he said. “And the conclusion we draw is, yes, we should.”

This article was written with the support of a journalistic grant from The Gerontological Society of America, The Journalists Network on Generations and the Silver Century Foundation.