America's retirement crisis might not be as bad as we thought

Chin up?

While some financial forecasts paint a grim picture for pre-retirees, new research offers a slightly rosier outlook: 401(k) benefits and Social Security might actually be enough to support you.

That's what the Employee Benefit Research Institute (EBRI) concluded in a recent study. The group found that 85 percent of workers with over 30 years of eligibility in a 401(k) will be able to replace at least 60 percent of their wages and salary earned at age 64, combined with their Social Security benefits. That's on an inflation-adjusted basis and assumes current Social Security benefits aren't reduced.

That estimation, however, doesn't account for a number of variables — including how workers handle their 401(k) plans. "The study paints a very rosy picture," said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. Simply put, having access to a 401(k) doesn't mean workers are actually going to make contributions.

And of course, the chances of Social Security benefits staying the same are hardly assured.

The perks of automation. Many Americans who have access to a 401(k) aren't using the accounts to their full advantage. "It's all about behavioral economics," said Jack VanDerhei author of the EBRI study. "[Success] is based on how much you decide to contribute, whether or not you roll the money over from one employer to the next, and whether you withdraw money prematurely."

To give workers a push, more employers are implementing auto-enrollment systems for 401(k) plans. "Americans are procrastinators," said Catherine Collinson, president of the Transamerica Center for Retirement Studies. "By having an automated contribution system in place, as opposed to one where employees have to opt-in, workers are more likely to save a percentage of their monthly income." But some companies instituting automated systems are applying them only to new hires, so older workers should check how their plan is set up.

Andrea Blackwelder, a financial planner and president of Wisdom Wealth Strategies in Denver, said workers who set up automated increases for their 401(k) contributions — even just 1 percent more each year — are on track for a brighter retirement. "It's a tough sell to sit down with someone and tell them that 60 to 70 percent of their pre-retirement income is enough to support their 'golden years' goals, like traveling around the world," said Blackwelder.

More competitive plans. The benefits of 401(k) savings have led many job seekers to look at employer-sponsored retirement plans when evaluating job openings. In response, companies are offering more competitive plans: A 2013 survey by benefits consultant Aon Hewitt of more than 400 plan sponsors found that one in five employers offers a one-to-one match on the first 6 percent of employee deferrals, up from one in 10 plan sponsors in 2011. The survey also found that for 77 percent of the employers, defined contribution programs such as 401(k) plans are the primary source of retirement income for their employees.

"There was a period after the recession where a lot of employers suspended their employer match, at least temporarily," says Gary Koenig, director of economic security at AARP's Public Policy Institute. Fortunately for American workers, the pendulum has recently swung back the other way.

The challenge of job moves. Careers with uninterrupted contributions to 401(k) plans are rare today, since workers change jobs frequently. The average worker holds 11 jobs from ages 18 to 46, according to a 2012 study by the Bureau of Labor Statistics.

For employees who work continuously but change jobs often, there is usually a wait period of several months for new employees before 401(k) eligibility applies and a minimum tenure required for full vesting.

Things are much tougher, of course, for those unable or unwilling to work continuously. "When people are in between jobs, it's not only a break in income but also a break in a person's ability to save," says Collinson, adding that more women take time off to be a new parent than men and are consequently less likely to make consistent 401(k) contributions.

Preparing for the unexpected. Of course, consistent savers aren't guaranteed a financially stable retirement when you factor in unanticipated expenses, like those resulting from a health crisis. Plus, the average worker is carrying more debt into retirement. According to a survey last year by Securian, 67 percent of pre-retirees expect to carry mortgage debt into retirement, compared to 30 percent in 2009. On a grander scale, 36 percent of those surveyed said they believe their finances in 2014 will be "upside down," meaning their debt will be greater than their savings and investments

There's also the issue of poor money management. "Even if people have enough income in retirement, how you manage those assets in retirement is what matters," Koenig says. It's an all-too-common event to see retirees simply run out of money.

Many financial planners advocate that workers aim to have 70 percent to 80 percent of pre-retirement income, which would reduce their chances of having enough money in retirement to around 60 percent, according to the EBRI study. But it's difficult to know exactly what a retiree's income needs will be. "You're no longer saving for retirement, no longer spending money on work expenses, and you could be in a lower tax bracket," VanDerhei says.

When the 401(k)'s not an option. If employers don't offer a 401(k) plan workers must actively seek retirement plans on their own, including IRAs and annuities. In his State of the Union speech, President Obama said he's offering a new option for workers without access to a 401(k): the MyRA savings vehicle.

The details still haven't been released, but the program will allow workers to set aside small amounts of money in a savings bond-like account that would convert to an IRA once it accumulates $15,000.

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