By Jon Vogler
This second blog in a two-part series about retirement readiness discusses whether 401(k)s and Social Security can adequately meet retirement income needs. Part 1 looked at the rule-of-thumb numbers cited as guidelines for income replacement in retirement.
The combination of Social Security benefits and 401(k) savings will provide most people with at least 60% of their preretirement annual income, according to a new study by the nonpartisan Employee Benefit Research Institute (EBRI).[1. Employee Benefit Research Institute, “The Role of Social Security, Defined Benefits and Private Retirement Accounts in the Face of the Retirement Crisis,” EBRI Notes, January 2014.]
A More Optimistic Message
Assuming that current Social Security benefits aren’t reduced, the analysis shows that 83% to 86% of employees with more than 30 years of eligibility in a 401(k) retirement plan could have sufficient funds to replace at least 60% of their age-64 wages and salaries.
When the threshold is raised to 70% replacement of this income — the general, but disputed, rule of thumb for percentage of preretirement replacement income required for a “comfortable” retirement — the study reveals that 73% to 76% of the employees will still meet that standard through 401(k) assets and Social Security payments combined. This conclusion offers “a very different message — a more optimistic message — than has been conveyed” in other studies, said Jack VanDerhei, EBRI research director.
Read the conclusion to this two-part series.
Jon Vogler is a Senior Analyst, Retirement Research, at Invesco.
The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
All data provided by Invesco unless otherwise noted.
Invesco Distributors, Inc.
Footnote
