How Well Positioned Are Younger Workers to Save for Retirement?
Gains in access to DC plans were offset by lower rates of access to defined benefit plans, but overall younger workers saw some improvements, according to a new study using data from 1998 to 2012.
Using data from the U.S. Census Bureau Survey of Income and Program Participation (SIPP), the Pew Charitable Trusts examined how workers ages 18-31 differ across time in terms of their access to, take-up of and participation in workplace retirement plans, including both DB and DC plans.The study
, which divides young workers into two groups between ages 18-24 and 25-31, finds that both groups saw similar increases in their rates of access to DC plans from 1998 to 2012, increasing from 38% to 44% and from 49% to 56%, respectively.
Not surprisingly, the gains in access to DC plans were largely offset for workers ages 18-24 by declines in their rates of access to DB plans over the same period. According to the study, these workers saw their access to those plans fall from 14% to 7%. And while access to DB plans declined for workers ages 25-31, the decline was not as large, falling from 15% to 12%. The result is that overall access for workers ages 18-24 remained relatively unchanged while access increased for workers ages 25-31.
And even though access overall remained constant, the take-up rate increased in both DC and DB plans for workers ages 25-31. Among this age group, take-up rate of DC plans increased from 61% to 67%, while that of DB plans increased from 65% to 75%. The age 18-24 cohort saw fewer gains, with the take-up rate of DC plans for these workers remaining steady at 34% between 1998 and 2012.
Not surprisingly, the key factor likely driving the improved take-up rate among the older cohort was the increased use of automatic enrollment in DC plans, the report notes. Closing the Plan Balance Gap
In 1998, a gap of more than $10,000 existed in mean plan balances between older and younger workers early in their careers, but younger workers closed much of this gap by 2012, the study notes. Workers age 25-31 in 2012 had substantial increases over similar workers in 1998, increasing from nearly $21,000 in 1998 to $27,000 in 2012. Perhaps more significant is that younger workers in 2012 reported having saved nearly as much in their retirement plans as older workers, increasing plan balances from just under $10,000 in 1998 to more than $25,000 in 2012. A Matter of Degree
When comparing educational attainment and retirement plan access, the report notes that differences in access across education level are consistent with previous findings, showing higher educational attainment associated with greater access to retirement plans.
The take-up rate, however, was higher for workers ages 25-31 compared to their younger counterparts, regardless of education. In 2012, 63% of workers ages 25-31 with no more than a high school diploma took up a retirement plan when offered one at work, higher than the 50% of workers ages 18-24 with a bachelor’s degree.
Moreover, those with a bachelor’s degree regardless of age and those ages 25-31 with a high school diploma or less had higher rates of take-up in 2012 than in 1998. Workers ages 18-24 with a bachelor’s degree had the greatest gains, increasing their take-up rate by 14 percentage points, the report notes. Similarly, those ages 25-31 with a bachelor’s degree had higher take-up rates in 2012, with 76% taking up a plan that year, compared to 67% in 1998.