Retirement Plan Participation and Retirees’ Perception of Their Standard of Living

January 2006
EBRI Issue Brief #289
Paperback, 44 pp.
PDF, 902 kb
Employee Benefit Research Institute, 2006

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Executive Summary

SIPP data and retirement plan coverage—This Issue Brief focuses on a critical factor in retirement security: the presence of income or assets from an employment-based retirement plan. It is the third in a series of EBRI publications based on the Retirement and Pension Plan Coverage Topical Module of the 2001 Survey of Income and Program Participation (SIPP), which has a wealth of data on workers’ participation in these plans as well as the plans’ characteristics and features. This report examines SIPP’s more detailed questions concerning workers’ participation in employment-based and other retirement plans.

Sponsorship, participation, and vested rates—As of 2003, 67.3 percent of wage and salary workers age 16 or older worked for an employer or union that sponsored any type of retirement plan (defined contribution or defined benefit) for its employees or members (the “sponsorship rate”). Almost 51 percent of the wage and salary workers participated in a plan (the “participation level”), with 46.8 percent being entitled to a benefit or eligible to receive a lump-sum distribution from a plan if their job terminated at the time of survey (the “vested rate”).

IRAs raise retirement coverage rate—When workers who are participating in a current or previous job’s plan are added to those who own an individual retirement account (IRA) or Keogh, the proportion of all workers who had some type of retirement plan in 2003 is 55.1 percent. Among workers ages 51–60, 69.4 percent had some form of retirement plan, and individuals with 15 or more years of tenure in a job had a 75.3 percent probability of having a plan.

Lump-sum distributions—Through 2003, 46.7 percent of those taking a lump-sum distribution used at least some portion of the money for tax-qualified savings (another employment-based plan, IRA, or annuity), while 21.6 percent used at least some portion of it for consumption. The other most prevalent uses were buying a home, paying off debt, or starting a business (32.0 per-cent of lump-sum recipients used their distributions for these reasons).

Standard of living in retirement—A significantly higher percentage of those who spent their lump-sum distributions entirely reported their standard of living as being somewhat or much worse than was reported by those who had rolled over their entire distribution (24.5 percent compared with 16.2 percent). In both cases the percentage who reported being much worse was fairly small, but the consequences of spending lump-sum distributions highlight the fact that those who took a lump-sum distribution and spent it entirely were approximately 50 percent more likely to describe their standard of living as being somewhat or much worse than was reported by all of those age 55 or older who rolled over their assets.