By Alicia H. Munnell, Annika Sundén
As the infant increase starts off to withdraw from the hard work strength, making sure a safe retirement source of revenue turns into an more and more very important factor, the variety of humans over age sixty five is anticipated to double by way of 2030. That pattern will proceed, observed by means of concerns approximately inventory marketplace volatility, company malfeasance, a quickly altering financial system, and the viability of Social defense. In arising brief, specialists on retirement coverage examine 401(k) plans, the fastest-growing form of employer-sponsored pensions and an essential resource of retirement source of revenue for the yank heart category. Alicia Munnell and Annika Sunden chronicle the improvement of 401(k) plans, now the dominant kind of deepest pensions. In obtainable language, they clarify how such plans paintings and talk about their acceptance. for staff, those plans are beautiful becuase they've got extra keep an eye on over their very own retirement cash, and the plans are moveable. For employers, the plans are usually more cost-effective than outlined profit plans. regardless of these merits, there are a few major downsides to 401(k) plans. those plans shift all of the threat and accountability to staff, who needs to come to a decision even if to hitch, how a lot to give a contribution, find out how to make investments, no matter if to "cash out" while altering jobs, and the way to regulate their nest egg in retirement. those are tough judgements, and whereas in conception 401(k)s may be a good rate reductions automobile for retirement, in perform many folks make blunders at each step alongside the way in which. Com ing Up brief discusses why those blunders are made and proposes numerous reforms to make sure that the getting older inhabitants can have sufficient retirement source of revenue. accomplished and updated, arising brief is a vital source on 401(k) plans for monetary provider execs, policymakers, lecturers, and participants making plans for his or her personal retirement.
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Additional info for Coming Up Short: The Challenge of 401(K) Plans
31. Gokhale, Kotlikoff, and Warshawsky (2002). qxd 1/21/2004 12:04 PM Page 35 401(k) Plans and Retirement Income 35 and other household expenses before the second child is born. From age twenty-five to age forty, the couple uses most of its saving to pay down the mortgage. Once the mortgage is under control, the couple starts saving seriously for their children’s college education. Between ages forty-five and fifty their children are in college, and the parents draw down their savings to cover tuition payments.
Critics have argued that these costs could be higher. 18. Even and McPherson (2001); Poterba, Venti, and Wise (1998, 2001); Samwick and Skinner (2001). Even and McPherson caution that 401(k) plans may put low-income workers at a greater risk of low pension wealth. 19. 6 percent over the period 1954 (the year the bond was introduced) through 2002. 6 percent was used to calculate the annuity payment. qxd 30 1/21/2004 12:04 PM Page 30 401(k) Plans and Retirement Income Table 2-2. 7 Source: Authors’ calculations.
But our view is that pension coverage would have remained relatively constant. That is, we believe that roughly half of the work force or their agents have the income, interest in saving, and knowledge of tax benefits to demand some form of employer-sponsored plan. Over the last twenty years, 401(k) plans best satisfied the need of workers and employers who were looking for a retirement-saving vehicle; if 401(k) plans had not emerged, employers would have remained with defined benefit plans or opted for a more traditional defined contribution plan.
Coming Up Short: The Challenge of 401(K) Plans by Alicia H. Munnell, Annika Sundén