How Income Disparities Can Threaten 401(k), Retirement Plan Growth

Study: Lower-income savers benefit less from 401(k)s than higher earners

More education needed to help workers tap existing strategies to make saving for retirement more affordable

SPRINGFIELD, Mass., Nov. 9, 2017 – 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 from their employer’s retirement savings plan, according to a study by Massachusetts Mutual Life Insurance Co. (MassMutual).

“Nearly nine in 10 middle-income Americans participate in employer-sponsored retirement plans,” said Tom Foster, national spokesperson for MassMutual’s Workplace Solutions. “However, 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. It highlights the need for more education, especially about available strategies to help make retirement savings more affordable for more people.”

Maxing the Match

Overall, 84 percent of middle-income Americans whose employer matches contributions to a 401(k) save enough to receive the full match, according to the 2017 MassMutual Retirement Savings & Household Income Study1 (Savings Study). However, annual household incomes as well as gender are determining factors in the likelihood of the saver contributing enough to obtain the full match. The internet-based study polled 1,010 Middle Americans with annual household incomes of between $35,000 and $150,000.


Do you save enough money in your workplace retirement savings plan to receive the full matching contribution offered by your employer?



Not sure





$35k to $44k




$45k to $74k




$75k plus












Six in 10 study respondents say their employer matches retirement plan contributions, with little variation between income levels. The matches range from 2 percent of an employee’s salary to 7 percent or more, with 5 percent matches being the most prevalent (21 percent), the study finds.

Non Savers and Income

Overall, lower-income workers are twice as likely as higher-income workers to skip saving in their employer’s retirement plan, according to the study. Of those who do not save, income is again a big determinant. Seven in 10 respondents with less than $45,000 in household income said they cannot afford to save for retirement compared to 23 percent of those earning $75,000 or more. Other reasons for passing on savings were lack of a compelling employer match or no match (23 percent), a preference to manage retirement savings outside an employer’s plan (14 percent), and wanting to save in an investment vehicle that provided greater accessibility to the money (14 percent).

Higher-income savers were also more likely to contribute a higher percentage of their income to a retirement savings plan than those with lesser incomes, the study shows. Overall, nearly half (43 percent) of study respondents say they contribute at least 5 percent and as much as 9 percent of their income. But those with incomes of $45,000 or more were three times more likely to save 15 percent or more of their income compared to those earning less than $45,000.


What percentage of your income do you personally save in your workplace retirement savings plan?


$34k to $44k

$45k to $74k

$75k plus





















15% or more






Education and Tips

Meanwhile, only one in four employers offers financial education or planning assistance, according to the study, with the most likely education being retirement planning. Three in 10 middle-income workers say they wish their employer offered more retirement planning and one in five would like help with their retirement investments.

“Employers and financial advisors need to help educate workers – especially those who may see savings as unaffordable – to find dollars and then make the most of them,” Foster said. He suggested several strategies to help workers save for retirement.

For Employers

  • Employ behavioral finance techniques. Employers can help encourage savings by automatically enrolling employees in their 401(k), requiring them to opt out if they wish not to contribute. Once employees start saving, Foster said, they often find it’s more affordable than they thought. Automatic escalation increases the rate of savings, typically until it hits double digits or the employee decides to stop boosting his or her contributions.
  • Support educational initiatives. Many financial services firms that provide 401(k)s products make resources available such as retirement education specialists to meet with groups of employees or even individual employees, online tools such as retirement calculators to gauge appropriate savings levels, webinars on retirement readiness and others.
  • Engage employees in marketing programs. Retirement plan providers often will create campaigns to promote retirement savings at the workplace, encouraging employees to start saving or boost their existing savings.

For Employees

  • Qualify for the Saver’s Credit. For the 2017 tax year, a married couple that files their taxes jointly and has an AGI of not more than $37,000 can obtain a credit of 50 percent of their retirement savings. The credit drops to 10 percent of retirement contributions for a married couple filing jointly with an AGI of $40,001–$62,000 and phases out completely for incomes above the latter threshold.2
  • Save pre-tax. Contributing pre-tax dollars to a 401(k) or similar plan may reduce a saver’s taxable income and, in the process, make saving more affordable.
  • Take advantage of any employer match. While not every employer matches retirement plan contributions, many do. Contributing enough to obtain a match, especially a full match, can help accelerate retirement savings.




About MassMutual
MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyowners. MassMutual offers a wide range of financial products and services, including life insurance, disability income insurance, long term care insurance, annuities, retirement plans and other employee benefits. For more information, visit
1MassMutual Retirement Savings and Household Income Study,
2IRS, Retirement Savings Contributions Credit (Saver’s Credit),