NEW YORK — Nearly half of U.S. retirement plan participants carry credit card debt, a financial strain that is linked to lower savings rates and weaker retirement readiness, according to new research released by J.P. Morgan Asset Management.
The firm’s annual “Retirement by the Numbers” report found that 48% of plan participants have credit card debt, making them more likely to take loans from their workplace retirement plans. High credit card balances are also associated with reduced contribution rates and smaller account balances, cutting retirement readiness by as much as 40% for older workers, the report said.
The research draws on data from about 16,000 defined contribution plans covering more than 12 million participants, along with spending patterns from more than five-million de-identified Chase households.
“Financial health matters, and the financial pressures outside of retirement plans directly affect savings behavior and long-term financial security,” Michael Conrath, chief retirement strategist at J.P. Morgan Asset Management said in a statement, adding the findings are intended to help plan sponsors design retirement plans that better reflect how participants actually save and spend.
The Findings
Among the other findings:
- Average retiree spending declines by more than 30% between ages 60 and 85, though spending can fluctuate sharply from year to year. About 60% of new retirees experience annual spending changes of 20% or more, according to the report.
- Small changes in saving behavior can have an outsized impact, the research showed. Increasing retirement contributions by just one percentage point starting at age 25 could help fund about nine years of average Medicare-related expenses later in life.
- Nearly 70% of defined contribution participants are invested in target-date funds, highlighting the role plan design plays in retirement outcomes. Still, investment strategy alone cannot offset inadequate savings, the firm said.
