As a record number of Americans hit retirement age, the inadequacies of 401(k) are getting increased attention.
retirement plans, the employer match, mostly benefits top earners and exacerbates income inequality in the U.S., finds a new study fromThe 401 is a linchpin of the American retirement system, but as a record number of Americans are now turning 65,They found that these matches amplify differences in how much different groups save for retirement — Black and Hispanic workers contribute less to these accounts. And the rich save more.
Vanguard found a wide range of match programs. In the most typical, if an employee puts in 6% of her income, the company will match half — meaning she's socking away an amount equal to 9%.the researchers found that the top 20% of earners within a company receive 44% of employer contributions."The system seems to be rewarding those who already can and do save the most," says Fiona Greig, global head of investor research and policy at Vanguard.
The 401 contributions are even more disproportionate — the top earners receive an 11% larger share of employer contributions than income.matches aren't incentivizing workers to save more money for retirement — those who save more are typically those who earn more money and can better afford to save. Only 13% of workers contribute the exact amount required to get the maximum employee match, suggesting that it alone is not much of an incentive to save, the researchers say.are put into 401s and must opt-out if they don't want to participate, could promote more retirement savings for low-income workers, they conclude.With a retirement crisis looming, workers need the money from those 401 matches — but that money is not distributed equitably.
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