Americans Still Largely Unprepared for Retirement, Despite Positive Trends

While some suggest Americans are facing a retirement “apocalypse” in the coming years as the Social Security fund is projected to deplete, other sources of retirement income may be rising to the top: 401(k) plans and individual retirement accounts (IRAs). 

Still, despite these plans holding a significant amount of Americans’ retirement assets, there seems to be an overall decline in the use of these accounts — and other retirement savings vehicles — across the board. 

While 401(k) plans serve as the gateway for retirement saving, more than half of the money saved now resides in IRAs, according to a recent report by the Center for Retirement Research at Boston College. 

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The center’s report supplements the Federal Reserve’s recently released 2013 Survey of Consumer Finances (SCF), which details changes in U.S. family finances from 2010 to 2013.  

Among other findings, the SCF survey shows that ownership of retirement accounts, including IRAs and employer-sponsored accounts such as 401(k) plans, fell below 50% in 2013, continuing the downward trend that was also noted between the 2007 and 2010 surveys. However, average values of those retirement accounts rose substantially. The conditional median value of retirement accounts increased 25% from $47,200 in 2010 to $59,000 in 2013. 

The bulk of this money ends up residing in IRAs, mostly as a result of rollovers from 401(k) plans, the Boston College report shows. 

A hefty $6.5 trillion of Americans’ private retirement assets currently rest in IRAs, with an additional $4.9 trillion in defined contribution plans such as 401(k)s. In contrast, $3.1 trillion resides in defined benefit plans, as pensions are becoming less prevalent. 

Still, the typical working household approaching retirement had only $111,000 in 401(k)/IRA balances, compared to $120,000 in 2010. 

Overall, the use of retirement accounts still isn’t widespread. Only for those in the top three income quintiles do retirement accounts appear to be meaningful sources of savings. Even in that group, however, a significant percentage of households have no balances. 

Previous reports have shown that 26% of 50- to 64-year-olds have not saved any money for retirement, and the same applies to 14% of people 65 and older.

So while the evolution of the retirement system seems to be pointing toward the use of 401(k)s and IRAs, Americans are still falling short in their retirement preparations. 

Read the full Boston College report here. For the full Survey of Consumer Finances, click here

Written by Emily Study

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