A new study has found that the adoption of more 401(k) retirement benefits plans rather than a pension plan is making pension inequality worse than ever. The study also found that Americans who were more educated were better prepared for retirement and those who aren’t much educated often don’t have access to it or they have no idea on how to use it to get the maximum benefit.
Data Shows Increased Adoption of 401(k) Retirement Benefits Plans
Some data shared by the U.S. Department of Labor stated that there is a considerable increase in the adoption of 401(k) retirement benefits plans. In the year 1980, 38 percent of people working in the private sector had a pension plan and just 19 percent had a 401(k) plan. Move forward a few decades and last year the percentage of people having access to a pension plan was just 15 percent while the percentage of people having access to a 401(k) plan was at 43 percent.
Two researchers recently analyzed the surveys related to W-2 tax data in order to find out how much money Americans who have varied levels of income were saving. The research was done by Christopher Tamborini, a Social Security Administration researcher and sociology professor of University of Kansas ChangHwan Kim.
The researchers found out that the workers who are a college graduate and hold a similar job like a person with a high school diploma were saving 26 percent more towards the 401(k) plans. It also highlighted that the workers with just a high school degree are less likely to get a job where retirement benefits options are offered. The study pointed out that even when the high school graduate workers had access to a good plan, they were less likely to sign up for it and if they did, their savings were not enough to let them have a comfortable retirement.
The study revealed that a median private sector worker without any college degree is contributing nothing to retirement while a median private sector worker with a college degree was saving over $2,000 a year.
A key problem behind the fewer savings done by high school pass outs was that they found the 401(k) retirement benefits plans to be more difficult as they are not automated. The employee has to take decision on everything from how much to invest, where to invest, etc. Unfortunately, they don’t have the required financial education to make that decision.