June 7, 2011

DC Plan Contributions 'Major Factor' in Retirement Success: EBRI

Contributing to a defined-contribution plan after age 64 makes 'positive difference' in chances for a comfortable retirement

It's been well-reported that many workers are delaying or planning to delay retirement, but a report from the Employee Benefit Research Institute released Tuesday found that it may be for naught. A major factor in ensuring a secure retirement is participation in a defined-contribution plan after age 65.

The report found that workers in the lowest preretirement income quartile would need to delay retirement to age 84 for a 50-50 chance at a secure retirement. Over three-quarters of the wealthiest workers will likely have sufficient income in retirement. Delaying retirement just four years increases the percentage of workers with adequate retirement savings to over 81%.

Value of DC Plans “Our research finds that many people may have to delay retirement far beyond age 65 to increase the probability that they have enough money to cover their retirement expenses at a comfortable level,” Jack VanDerhei, EBRI’s research director and co-author of the report, said in a statement. “What really makes a positive difference, we found, is if people who continue to work after 65 also continue to contribute to a defined contribution retirement plan.”

According to EBRI, contributing to a defined-contribution plan after age 65 increases the chances of a secure retirement in the majority of retirement age/income combinations by 10 percentage points. The report discovered a relative increase in households with a 50-50 chance for a secure retirement in each quartile.

Health care costs are another major factor in retirement success. Households that exclude health care expenses in retirement projections may have a false image of their chances for success. EBRI studied the cost of excluding health care expenses from retirement plans for each quartile at age 65 and 84. The report found that while more households appear more likely to meet the 50% probability for success threshold at age 65, by 84, the differences are negligible.

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