What are the factors that you find in those fortunate people who are on track to funding an affordable retirement, vs. those who are not? An ongoing study by a mutual fund organization, drawing on data from 4,100 working adults age 18 to 65, found that the answers might be more simple than you think.
On average, the study found that households are on track to replace 61% of their pre-retirement income during retirement–basically living on a little more than half of what they were making before they entered their Golden Years. But the study found that this number (again, on average) jumps to 82% for Americans who are participating in some form of defined contribution (401(k) or 403(b)) pension plan at work, and the average reaches 98%–basically, full lifestyle replacement–for people who are in plans with automatic enrollment and automatic escalation features. The automatic escalation provision takes some of the money that workers receive from future raises and puts it aside in the tax-deferred plan–before that extra money ever hits their checking account.
It is important to note that people earning low wages are replacing those low wages, and high earners are replacing much higher incomes; this study simply talks about replacing the pre-retirement income. But it appears that automated, steady savings over a worker’s lifetime, plus long-term tax-deferral, can have a powerful impact on whether or not people can afford retirement. The study also noted that people who are deferring up to 10% of their total income will (again, on average) actually live better in retirement than before; on average, they will have 111% of their pre-retirement income to spend in their golden years.
Article written by Bob Veres of Inside Information