Workers nearing the retirement age are becoming savvier about preparing for retirement, with 64% of employees between the ages of 51 and 60 participating in a retirement plan in 2003, a report from the Employee Benefit Research Institute of Washington shows. Participation among people in their 50s was the highest out of the other four age brackets, which were divided up every 10 years starting at age 21.

"People in that age bracket have a more immediate retirement on the horizon than others, and most likely, they are at the job they will stay at until they retire," said Craig Copeland, author of the report.

The report was based on a "Survey of Income and Program Participation," which includes extensive data on workers' participation in defined contribution plans as well as plan characteristics and features. The report also showed that more than 70% of employees participated in a retirement plan at some point in their lives and that in 2003, 75% of employees 51-60 years old worked at a firm that sponsored a defined contribution plan.

Participation in retirement plans by employees age 51 and older increased 5.5 percentage points from 1998, when the data was last collected. The most common choice available to people in that age bracket is a 401(k), with 42% of people age 51 and older participating in such a plan.

"The industry is seeing a big pickup in 401(k) plans because of the tax advantage and a 2001 catch-up' law that was passed," said David Wray, president of the Profit Sharing/401(k) Council of America in Washington. "The drumbeat message that people need to start saving more for retirement is reaching out to communities, and people have started to and will continue to increase savings."

There are other options for retirement savings, such as IRAs or other money savings accounts, but they do not have tax advantages. Nonetheless, if people have the ability to save more money in addition to defined contribution plans, they should do so, experts said, because more people are living longer and will need more money to last throughout their retirement.

If this is the first time a person in their 50s is contributing to a plan, the only way for them to make significant gains is to contribute large amounts of money, Copeland said. People over 50 are usually in their peak earning years and have moved beyond expensive family responsibilities, like putting children through college, and are able to contribute more to a 401(k), Wray commented. "It is better late than never to start investing," Copeland added.

Nonetheless, 18% of people in their 50s said they cannot afford to participate in a retirement plan, even though one is available to them, saying there was no area in their life for them to cut expenses. "People should find a way to contribute because it's going to be worse later on in life without retirement money than it is now," Copeland said.

For all employees over the age of 21, a little more than half are contributing to an employment-based retirement plan, the report showed. Of those that are, more than one third participate in a 401(k)-type of plan. On the whole, participation by employees in all age brackets increased from 1998. However, experts agree that the participation should be higher.

More employers are seeing opportunities in retirement plans and are offering plans as an effective recruitment and retention tool. "People understand that they have to prepare for retirement and seek out and take advantage of plans," Copeland said.

Additionally, what individuals chose to do with a lump-sum distribution is another significant factor in saving for retirement. Almost 16 million individuals had taken a lump-sum distribution in 2003, with the average amount around $30,000. Although some employees are forced to take a lump-sum distribution, they have options as to where they can rollover the assets. The majority of people chose to put their money into an IRA, but a few used the money to pay off debt or buy a home.

The demographics that typically are less involved in retirement plans are younger workers, workers who earn less, minority groups, females, less educated workers, workers not covered by a union and those who work for a smaller company. Focusing on educating these groups offers the greatest potential to increase their participation and contribution rates, according to the report.

Other factors play into retirement security, with rolling over assets only the first step. People need to determine how to use their assets after retirement. If assets are used too quickly, retirees will have to decrease their standard of living. On the other hand, some people may reduce their standard of living too much.

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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