Why Are 401(k)/IRA Balances Substantially Below Potential?

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The brief’s key findings are:

  • 401(k)s/IRAs have the potential to provide significant wealth.
  • But a typical 60-year-old with a 401(k) in 2016 had less than $100,000 compared to a potential $360,000 in combined 401(k)/IRA assets.
  • Four factors could explain this gap: the immaturity of the 401(k) system, the lack of universal coverage, leakages, and fees.
  • The analysis finds that the main culprits are the immature system and lack of coverage.
  • This story holds even if younger workers and those with traditional pensions are excluded.
  • Even after the 401(k) system is fully mature, a large gap between potential and actual assets is likely to persist.