Tags: Americans | Hot | Debt | Retirement

Americans: Hot for Debt, Lukewarm on Retirement

By    |   Sunday, 27 October 2013 05:44 PM

Contributions to 401(k) accounts and other retirement funds have surged, making it seem like American workers are saving more for their golden years.

But even as they put away more for the future, most people are accumulating debt faster than they're saving for retirement, reveals a study by HelloWallet, a firm offering research and financial advice.

More than 60 percent of households with defined-contribution plans added more debt than they contributed to retirement savings during 2010-11, the research finds.

HelloWallet calls that group "debt savers."

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

Twenty percent accumulated credit card debt faster than retirement savings, and 20 percent accumulated mortgage debt faster.

Combined with employer matches, contributions to 401(k) plans and other defined contribution plans added up to over $300 billion a year as of 2010, according to the study.

Yet workers remain dismally unprepared for retirement. Retirement plan participants near retirement had a median of just 2 percent of replacement income saved. That's about 15 years short of the median lifespan post-retirement.

A huge increase in debt is to blame. Defined-contribution participants added nearly $2.7 trillion in debt from 1992 to 2012. That means they have less to allot to retirement plans, the report states.

"It also could mean that workers’ debt obligations in retirement have increased, which raises the price of retirement and undercuts the effectiveness of [defined-contribution] savings programs and incentives."

The debt obligation, or the percentage of household income going to pay off debt, increased 9 percent for participants in defined-contribution plans from 1992 to 2010, leaving less available for retirement contributions.

The proportion of such participants building debt faster than retirement savings increased from 46 percent in 2006-07 to 64 percent in 2010-11.

"We raised the victory flag as people increased retirement contributions, but in reality the ability of people to retire is a function of lots of different variables, most important of which is what they are doing on the other side of the ledger," HelloWallet CEO Matt Fellowes told The Washington Post.

"Individuals should consider their full balance sheet and financial picture, which for many households may mean saving for retirement through a 401(k) plan while also paying down student loans, taking out a mortgage to buy a house, or borrowing to send their children to college," advises Mike McNamee, a spokesperson for the Investment Company Institute, according to the Post.

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

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Even as Americans put away more for the future, most people are accumulating debt faster than they're saving for retirement.
Sunday, 27 October 2013 05:44 PM
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