Workers Not Saving Enough to Get 401(k) Match

Most 401(k)s are expected to produce only a fraction of the income retirees will need.


The majority of Americans are not saving enough in their 401(k) plan to be able to retire comfortably. Almost three quarters of current workers are not on track to replace 70 percent of their pre-retirement income at age 65 using their 401(k) plan and Social Security if the markets perform typically, according to a recent Financial Engines report. The analysis of over 2.8 million 401(k) participants at 272 employers found that the typical 401(k) participant is projected to be able to replace only 55 percent of his or her pre-retirement income.

[See 10 Costs That Could Increase in Retirement.]

The median income generated from 401(k)s in retirement is expected to be $13,700 per year, Financial Engines found. When you factor in projected Social Security income, the typical 401(k) participant is on track to bring in $33,500 per year using a combination of these two sources. However, the 401(k) participants in the study need to be able to produce a median of $48,400 per year in today’s dollars if they want to replace 70 percent of their working income.

“Due to the decline in defined benefit pension plans, it now takes a series of good decisions throughout a participant’s career to achieve a successful retirement,” writes Financial Engines president and chief executive Jeff Maggioncalda. “Without help and without a plan, chances are good that many participants will not have enough assets to comfortably retire at age 65.”

Many 401(k) participants (39 percent) are not saving enough to receive the full employer match (or at least 5 percent of salary at companies with no match), up from 33 percent in 2008. Younger workers are especially likely to be passing up employer contributions. The majority of retirement savers under 30 (53 percent) and 44 percent of those in their 30s are missing out a 401(k) match.

[See 5 Employers With Generous 401(k) Matches.]

Workers earning under $75,000 per year are actually saving less for retirement now than they did 2 years ago. Half of those with salaries between $25,000 and $50,000 and over a third of those bringing in $50,000 to $75,000 did not save enough in their 401(k)s to receive the full match in 2010, compared with 39 percent and 24 percent respectively in 2008.

While automatic enrollment is getting more people to save something in 401(k) plans, many of these workers are still not saving enough for a secure retirement unless their plan also automatically increases worker savings rates each year to an upper limit. Some 67 percent of investors in plans with automatic escalation save enough to receive the full employer match, compared to just 52 percent of participants in plans without automatic escalation.

[See The 401(k) Match’s Big Role in Retirement Security.]

Very few retirement savers actually max out their 401(k). Only 6 percent of 401(k) account owners are saving within $500 of IRS limits, down 1 percent from 2008.