Why 401 (k) plans will not solve the US withdrawal crisis

Kyla Ernst-Alper, a 38-year-old air performer in New York City, has never had a 401 (k) retirement plan.

He holds several jobs at once to support himself, and none of them offer him any retirement options. Keep what you can in an individual retirement account, but these savings are not always consistent. This is due to his line of work, which was especially successful when live shows were canceled due to the public health crisis.

“Before the pandemic, people in my community barely paid their bills,” Ernst-Alper said. “You’re lucky if you can save money.”

The 401 (k) is framed today as the main way to save for Americans for retirement, especially because traditional pensions are less common. However, the lack of access to plans leaves a large proportion of workers, particularly low-income workers, women and people of color.

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In general, about half of private sector workers are not covered by an employer-sponsored retirement plan, either because their company does not have one or because they are not eligible for the offer, according to the Center. for Boston Retirement Research. University. In addition, a growing number of American workers generally cannot access 401 (k) because they are contractors or self-employed.

Those who do not have access to an employer-sponsored plan may be left behind without benefits, such as matching employer contributions or automatic employee enrollment. As a result, 1 in 4 U.S. workers has not even saved $ 10,000 for retirement.

“For many demographic groups, the typical working-age household has no savings in retirement account or only has a trivial amount,” said Monique Morrissey, an economist at the Institute for Economic Policy, who is in the left handed.

Of course, experts say that while 401 (k) plans have problems, they should not be abandoned. When used, they can be powerful savings tools: the average share of a 401 (k) from a twenty-year-old investor in 2019 was $ 10,500, according to Fidelity. Those in their thirties had saved an average of $ 38,400, while those in their 40s, 50s, and 60s had an average of $ 93,400, $ 160,000, and $ 182,100, respectively.

“I don’t mean‘ get rid of 401 (k) plans, ’” said Steve Vernon, a research consultant at the Stanford Center of Longevity. “I just want to say they need to be improved.”

That improvement should take the form of having more access, said Nevin Adams, head of content for the American Retirement Association.

In fact, when people are offered the chance to save on a 401 (k), they take it. According to a Plan Sponsor Council of America survey, nearly 90% of employees who had 401 (k) access to work in 2019 contributed to their plan.

Here’s who leaves the plans behind. (Many people fall into several categories.)

Large companies are much more likely than small ones to offer a 401 (k) plan to their workers, said Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies.

While 92% of companies with 500 or more employees offered a 401 (k) or similar plan in 2019, only 57% of companies with less than 99 employees did so, according to a Transamerica Center survey.

“Employers who don’t offer plans are usually new, small, have relatively few employees, and / or have a temporary, temporary, part-time, and / or lower-wage workforce,” said Angie Chen, deputy director of research at Savings Center for Retirement Research at Boston College, wrote in an email.

Many of these workers do not have time to advocate for change.

“These employees often have urgent financial needs that usually eliminate any retirement security demand provided by the employer,” Chen said.

People with higher incomes are much more likely to be offered a 401 (k) job than those on lower incomes, which only exacerbates retirement savings inequality.

More than 70% of workers with household incomes above $ 100,000 have access to 401 (k), compared to 50% of those with household incomes below $ 50,000, according to Transamerica.

“Income disparities and access to retirement benefits suggest that lower-income workers will inevitably rely on Social Security for a larger proportion of their retirement income,” Collinson said. (The average Social Security check is less than $ 1,400).

“They will face a higher risk of poverty in retirement.”

401 (k) plans are primarily associated with traditional full-time employment.

However, research has shown that the proportion of American workers engaged in temporary or unstable jobs is increasing rapidly.

Many of these workers who make a living from applications or who only work for self-employed companies will not have access to a company retirement plan. In fact, only 41% of part-time workers received a 401 (k) plan from their employer, according to the Transamerica survey.

While it is possible to establish and contribute to the so-called solo 401 (k), without any push to automatically join or sign up for the functions of an employer, many concert workers give up these options.

Cincinnati-based Danny Samet has always worked independently as a tour manager and merchandiser for groups, jumping from one concert to the next. He has never been spared on a company-sponsored retirement plan, he thought he would take away what he can in a few different IRAs.

In his industry, he said, most people have no savings for the last few years.

“There are a lot of people who are not preparing for retirement,” said Samet, 28.

People of color and women are more likely to work in industries or jobs that don’t give them access to an employer-sponsored plan, according to John Scott, director of the Pew Charitable Trusts retirement savings project.

They also generally make less of it than white men, which usually means they can save less over time.

Half of working-age white households have access to a 401 (k) or similar plan in their current job, compared to 37% of black households and 26% of Hispanic households, according to the ‘EPI.

Jenny Lezan, of Naperville, Illinois, is not entitled to a retirement plan at the school where she teaches because she is an adjunct teacher.

“They consider me a contract worker,” Lezan, 35, said. “I don’t have a retirement fund right now, which is terrifying, if I’m honest.”

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