Few Boomers Catch Up on 401(k) Saving
Only 13 percent of older workers take advantage of the “catch-up” contributions to their retirement accounts permitted by the IRS for anyone over 50, according to new data provided by Fidelity Investments.
This is hardly surprising, since prior research has estimated that only about 10 percent of all workers are contributing the maximum $17,500 per year that everyone, regardless of age, is allowed to contribute under IRS guidelines for 2013. Since the vast majority never reach that cap, the “catch-up” 401(k) contribution enacted to encourage people to save more when they hit their 50th birthday – an additional $5,500 per year – is largely irrelevant to them.
But the catch-up contribution data, which Fidelity culled from its 401(k) client database representing some 12 million workers, are yet another reminder of a fundamental problem with the U.S. retirement system: Americans simply are not saving enough to ensure their financial security in old age.
In short, members of the Me Generation don’t seem to be doing a great job of taking care of Me.
The evidence is compelling: the typical older household enrolled in a 401(k) plan at work has saved about $120,000. That’s probably not even enough to pay for their health care in excess of what Medicare will cover. Many workers have no 401(k) savings at all. Despite having too little money in the bank and prospects for a long life, very few people are feeling any urgency to save more.
So who is taking advantage of the additional tax deduction for catch-up contributions? Sixty-two percent are men, and 38 percent are women, according to Fidelity.
These catch-up contributions may be concentrated among higher-income households. Those who make them are saving a hefty share of their salary: 21 percent of men’s earnings, on average, and 23 percent of women’s earnings – these amounts do not include the employer match.
To read the IRS guidelines for catch-up contributions, click this webpage.
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This baby boomer choses to max out her Roth IRA as well as contributing ~$17,500 to her 401(k) every year. This works out to approx 34% of my salary. My employer adds another 4%. In order to do this, I live very frugally. Given that my salary is well above the median in my community, I can see why many boomers are not able to take advantage of the catch up contribution.
Wow, only 13%? These numbers are very scary. If I had the opportunity to contribute more to my 401(k) plan I would. It bothers me to see that I have more than twice in my 401(k) what the "typical older household" has.I really can appreciate articles like this that highlight these kinds of gaps in saving because I'm afraid that many people will be for a rude awakening when they find they don't have enough to stop working. As the article points out, the average amount won't even cover Medicare. If more people were aware of this, perhaps they would take action.
We can thank former President Bush for driving the country into the Great Recesssion. It is sad that most folks are not taking advantage of this opportunity.