Need a little reminder of why retirement plan advisors do what they do? The Employee Benefit Research Institute (EBRI) is happy to oblige.
The organization recently released “A Look at the End-of-Life Financial Situation in America,” a detailed report on the financial situation of older Americans at the end of their lives. What is saw wasn’t pretty.
In particular, it documents the percentage of households with a member who recently died with few or no assets. It also documents the income, debt, home-ownership rates, net home equity, and dependency on Social Security for households that experienced a recent death.
Significant findings include that among all those who died at ages 85 or above, 20.6 percent had no non-housing assets and 12.2 percent had no assets left. Among singles who died at or above age 85, 24.6 percent had no non-housing assets left and 16.7 percent had no assets left.
Data show those who died at earlier ages were generally worse off financially: 29.8 percent of households that lost a member between ages 50 and 64 had no assets left. Households with at least one member who died earlier also had significantly lower income than households with all surviving members.
The report shows that among singles who died at ages 85 or above, 9.1 percent had outstanding debt (other than mortgage debt) and the average debt amount for them was $6,368.
The report also shows that the importance of Social Security to older households cannot be overstated. For recently deceased singles, it provided at least two-thirds of their household income. Couple households above age 75 with deceased members received more than 60 percent of their household income from Social Security.
So does this somehow mean 401(k)s are failing Americans? Hardly.
EBRI examined the way workers age 25-29 save for retirement. It says that 401(k)s are a good investment for lower-income workers in that age group who are eligible for a retirement plan for 30 to 40 years, projecting that they would have income replacement during retirement that would be 15 percentage points higher if they participated in a 401(k) rather than a traditional defined benefit plan.
And that effect is amplified for employees in that age group who earn more—income replacement for those with a 401(k) is 21 to 30 percentage points more than for those who participate in a DB plan, writes ASPPA’s John Lekel.
“EBRI notes, however, that these results depend on a certain rate of return on the investments in which those 401(k) funds have been put,” Lekel writes. “For lower-income workers and those who earn just more than they, if there is a significant drop in the rate of return employees in those groups realize with their 401(k), their income replacement at retirement would be slightly higher with a DB plan. But for the highest-income groups, says EBRI, even with a lower rate of return a [worker] would do better with a 401(k) than a DB plan.”
See Also:
- Americans Overconfident But Underprepared For Unexpected Death
- Life Planning in the 21st Century: Everplans’ Schneiderman
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
