Retirement Savings Adequacy in U.S. Defined Contribution Plans

85 Pages Posted: 19 Dec 2018

See all articles by Francisco Gomes

Francisco Gomes

London Business School

Kenton Hoyem

Financial Engines, Inc.

Wei-Yin Hu

Financial Engines, Inc.

Enrichetta Ravina

Kellogg School of Management; European Corporate Governance Institute (ECGI)

Date Written: November 30, 2018


We evaluate retirement savings adequacy in the U.S. using a large panel dataset comprising the contribution rates, salary, tenure, account value, plan features and asset allocations of more than 300 thousand US workers with a 401(k) account. Our simulations account for medical expenditure, longevity, and investment risks, and realistically model the likelihood of withdrawals due to hardship, job separation, and reaching age 59 1/2. We find that, based on their current account balances, income, saving, and investment behavior, close to three quarters of the workers in our sample are not saving enough for retirement. The dispersion is related to the generosity of employer contributions, account balances, but also worker saving behavior, which can potentially be changed going forward. The shortfall worsens if we introduce a bequest motive, decrease the fraction of housing equity available, or consider lower expected returns going forward. Only if we assume that individuals have both low risk aversion and very high discount rates do we conclude that the median agent is saving optimally. Given the magnitude of the problem, only major policy changes would fully addressed it, but a reasonable age-dependent minimum contribution rate could have a sizable impact, particularly for younger generations which have many years ahead of them to benefit from such a policy.

Keywords: Retirement Savings; Household Finance; 401(k) Plans

JEL Classification: D14, D91, G11

Suggested Citation

Gomes, Francisco and Hoyem, Kenton and Hu, Wei-Yin and Ravina, Enrichetta, Retirement Savings Adequacy in U.S. Defined Contribution Plans (November 30, 2018). Available at SSRN: or

Francisco Gomes

London Business School ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 (Phone)
+44 20 7724 3317 (Fax)


Kenton Hoyem

Financial Engines, Inc. ( email )

1804 Embarcadero Road
Palo Alto, CA 94303
United States

Wei-Yin Hu

Financial Engines, Inc. ( email )

1050 Enterprise Way, 3rd Floor
Sunnyvale, CA 94089
United States

Enrichetta Ravina (Contact Author)

Kellogg School of Management ( email )

Evanston, IL 60208
United States
8474676872 (Phone)

HOME PAGE: http://

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

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