Can 401(K) Accumulations Generate Significant Income for Future Retirees?

Abstract

This Issue Brief develops a model that projects the proportion of an individual's preretirement income that might be replaced by 401(k) plan accumulations at retirement, under several different projected scenarios. The 401(k) participant behaviors in the model are based on the year-end 2000 database collected by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) in their collaborative effort known as the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. The most significant factor affecting projected replacement rates at retirement is having access to a 401(k) plan. Projected replacement rates from 401(k) accumulations at retirement are reduced significantly when participants are not offered a 401(k) plan in all portions of their careers.

Keywords: 401(k) Plans, Employment-based Benefits, Income Replacement Rate, Retirement Income, Social Security

JEL Classification: D31, D91, J26