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Lax 401(k) Contributions Push Average Retirement Age to 73

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A report released Wednesday by Nyhart, an actuarial and employee benefit consulting firm, found the main reason employees are unable to retire at age 65 is that they aren't contributing enough to their 401(k) plans.

The vast majority – 81% – of workers surveyed will not be able to retire at 65; in fact, the new retirement age has been pushed to 73 for the average employee relying on his 401(k) as primary retirement income.

Simply increasing the amount they contribute may not be enough, though. Workers older than 55 will have to contribute over 45% of their income to retire in 10 years. For workers between 45 and 55, contributions should average 19% of their income to retire by 65.

"An employee's level of contribution is the single greatest factor in determining if they will retire on time," the report authors declare. "It is also the only major factor the employee controls in the overall investment return."

The authors posit that measuring a plan's success by the account balance at the participant's target retirement date is "fundamentally incomplete" and a "gross misunderstanding of what an employee should be focused on."

The peak age of contribution, the report found, is between ages 55 and 64 when income is the highest, and employees lose the benefits of compound interest. Fifteen percent of workers are not contributing at all.

While younger workers have a better chance of being able to retire by 65, almost 70% of them run the risk of having to put retirement off. The number of workers under 30 who would be able to retire at 65 would double if they increased their contribution by 4%.