Higher-Earners Benefit More From 401(k)s

Seventy percent of those with less than $45,000 in household income say they cannot afford to save for retirement.

While participation in 401(k) plans is high across the board for middle-income workers, the lower their income, the less likely they are to reap the full advantages of their employer’s retirement savings plan, MassMutual found in a survey.

Overall, 84% of middle-income workers save enough in their retirement plan to receive the full match from their employer. Among those making $75,000 or more, it rises to 90%. However, for those making between $35,000 and $44,000, only 67% save enough to receive the full match, and for those in the $45,000 to $74,000 income range, it is 77%.

Seventy percent of those with less than $45,000 in household income said they cannot afford to save for retirement. For those earning $75,000 or more, only 23% share this opinion.

Other reasons why those surveyed said they do not participate in their employer’s retirement plan are lack of a compelling match or no match at all (23%), the preference to manage money outside of the plan (14%) and wanting to invest in a vehicle that provides greater accessibility to the money (14%).

Sixty percent of those who were surveyed said their employer offers a match, with 5% matches being the most prevalent, cited by 21%. However, employer matches range between 2% and 7% or more, survey respondents said.

“MassMutual’s research shows that savers with higher incomes are far more likely to contribute a higher percentage of their income and take full advantage of matching contributions,” says Tom Foster, national spokesperson for MassMutual’s Workplace Solutions. “It highlights the need for more education, especially about available strategies to help make retirement savings more affordable for more people. Employers and financial advisers need to help educate workers, especially those who may see savings as unaffordable, to find dollars and then make the most of them.”

To help participants, Foster recommends that advisers recommend automatic enrollment paired with auto escalation, as well as education through group and one-on-one meetings as well as online resources, and educational campaigns.

Foster also says that advisers can educate participants about the saver’s credit. For the 2017 tax year, a married couple that files their taxes jointly and has an adjusted gross income of no more than $37,000 can obtain a credit of 50% of their retirement savings. For those with an adjusted gross income of between $40,001 and $62,000, it drops to a 10% credit, and for those with incomes above that range, it phases out completely.

Some participants may also not be aware of the tax advantages of 401(k)s or of their employer’s match, Foster adds.