Social Security, 401(k) Savings Could Sustain Retirement

January 22, 2014 ( – New analysis concludes that Social Security benefits, along with 401(k) savings, can provide workers with an annual income level representing more than half of preretirement pay.

By Kevin McGuinness | January 22, 2014
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The analysis from the Washington, D.C.-based Employee Benefit Research Institute (EBRI) finds that, assuming current Social Security benefits are not reduced, 83% to 86% of employees with more than 30 years of eligibility in a 401(k) retirement plan could have sufficient funds to replace at least 60% of their age-64 wages and salary.

When the threshold for a financially successful retirement is increased to 70% replacement of age-64 income, the analysis finds that 73% to 76% of the employee set will still meet that threshold through 401(k) assets and Social Security payments combined. At an 80% replacement rate, the analysis finds that 67% of the lowest income quartile will still meet the threshold if they have had 30 years of access to a 401(k).

Automatic enrollment in 401(k) plans can also play a role in successful saving for retirement. The EBRI analysis examines auto-enrollment with an annual 1% automatic escalation provision and empirically derived opt-outs, and finds that the probability of success increases substantially for employees in those plans, as follows:

  • Between 88% and 94% could potentially achieve 60% threshold;
  • Between 81% and 90% could achieve a 70% replacement threshold; and
  • Between 73% and 85% could achieve an 80% threshold.

EBRI notes that the use of auto-enrollment as a plan feature has grown significantly since the enactment of the Pension Protection Act of 2006.