The Finance of Longevity

Measuring The Impact of Behaviors That Delay Retirement for 401(k) Savers

New analytic capabilities show loans, hardship withdrawals and suspended deferrals come with costs for both employers and employees

SPRINGFIELD, Mass., Dec. 19, 2017 – Dipping into retirement savings early, suspending contributions to 401(k) plans or both is projected to reduce workers’ retirement savings on average by 14 percent, delaying retirements and costing employers more for salaries and benefits as their workforce ages, according to new analytic capabilities introduced by Massachusetts Mutual Life Insurance Co. (MassMutual).

“[Our analysis] shows there’s a real cost to employers as well as employees related to specific behaviors that reduce retirement savings and impair the ability of employees to retire sooner rather than later,” said Josh Mermelstein, Head of Retirement Readiness Solutions. “We are expanding our analytics capabilities to help employers and their financial advisors project these costs and take appropriate actions to keep retirement savings on target.”

MassMutual, through its Viability Advisory Group, provides tools and analysis to help employers and their financial advisors evaluate the potential costs and liabilities associated with the under-utilization of retirement savings plans, specifically if employees lack sufficient savings to replace 75 percent of their pre-retirement income at age 65. The analysis also helps employers measure the inherent value of 401(k)s and other defined contribution retirement plans when they are utilized to their fullest.

Retirement… Interupted

Now, MassMutual is introducing new capabilities to calculate employers’ potential liabilities associated with behaviors that interrupt retirement savings, including taking loans or hardship withdrawals, suspending salary deferrals, or opting out of behavioral finance initiatives such as automatic enrollment or automatic deferral. Such behaviors can push back retirements by years, necessitating that workers stay on the job long after the traditional retirement age of 65.

For example, a typical 40-year-old worker who is currently on target to retire at age 65 but then borrows 30 percent of the savings in his 401(k) could potentially reduce his available retirement income by 15 percent and delay his retirement by five years, according to MassMutual’s analysis.

The Age Variable

The impact of behaviors that negatively affect retirement readiness varies with age, MassMutual’s data shows, with younger employees most likely to participate in as well as suffer the most from such activities. A 29-year-old employee who is on target to retire at age 65 but then takes a hardship withdrawal reduces his or her retirement-readiness by 20 percent on average, according to MassMutual’s analytics. Meanwhile, a 60-year-old employee who is on target to retire and withdraws the same amount typically reduces his or her retirement readiness by 3 percent on average.

The loss of retirement readiness reflects the value of lost interest earnings on the withdrawal before retirement, taxes and penalties, as well as a six-month suspension in salary deferrals, which typically happens when retirement plan participants withdraw savings.

to help employers and potentially employees make better, more informed decisions about how to manage their retirement savings plans

MassMutual calculates the impact of activities that impair retirement readiness by using an employer’s own salary, benefits and retirement savings data. The underlying assumptions for specific behaviors are based on a benchmark created with data from the National Bureau of Economic Research1, the Employee Benefits Research Institute2, American Benefits Institute3, the United States Department of Labor4, and MassMutual’s own experience with retirement plans.

Interruptions to retirement savings can be costly for both employees and employers. A reduction in retirement readiness may require an employee to continue working past age 65, Mermelstein explained. That typically increases an employer’s costs for salaries, health and disability insurance benefits as workers remain in the workforce at older ages, he said.

Costly Behaviors

Projecting the cost of behaviors that can erode retirement savings and reduce retirement-readiness enables employers to better manage their retirement plans by:

  • Deciding whether to allow or limit the ability of employees to take loans or withdrawals from their retirement savings;
  • Ensuring retirement savings incentives such as matching contributions are used as intended, to help workers better prepare for retirement;
  • Educating workers about the negative effects of loans, withdrawals and deferral suspensions on their ability to retire and encourage them to avoid such behaviors;
  • Providing programs that educate workers about financial issues such as budgeting, debt management, retirement planning and related topics; and
  • Educating employees about appropriate investment choices and asset allocations based on their retirement goals and time horizon to help employees more effectively accumulate and protect savings over the long term.

“The end game for MassMutual’s data capabilities is to help employers and potentially employees make better, more informed decisions about how to manage their retirement savings plans,” Mermelstein said. “We see the latest enhancements as helping employers implement retirement plan designs and incorporate programs that encourage behaviors that encourage rather than discourage 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
1National Bureau of Economic Research, Hardship Withdrawals from 401(k) Savings, Borrowing from the Future: 401(k) Plan Loans and Loan Defaults,
2Employee Benefits Research Institute, 401k Loan Activity,,
3American Benefits Institute, Trends in 401(k) Plans,
4Department of Labor, Patterns of Marriage and Divorce,