Working Paper: NBER ID: w13091
Authors: James Poterba; Steven F. Venti; David A. Wise
Abstract: Saving through private pensions has been an important complement to Social Security in providing for the financial needs of older Americans. In the past twenty five years, however, there has been a dramatic change in private retirement saving. Personal retirement accounts have replaced defined benefit pension plans as the primary means of retirement saving. It is important to understand how this change will affect the wealth of future retirees. The personal retirement account system is not yet mature. A person who retired in 2000, for example, could have contributed to a 401(k) for at most 18 years and the typical 401(k) participant had only contributed for a little over seven years. Nonetheless, current 401(k) assets are quite large. We consider in this paper the implications of rising 401(k) saving through the year 2040. In particular, we emphasize the growth of the sum of Social Security wealth and 401(k) assets for families in each decile of the Social Security wealth distribution. Our projections show a substantial increase between 2000 and 2040 in the sum of these retirement assets in each wealth decile. We also consider the accumulation of 401(k) assets by families in different deciles of the distribution of lifetime earnings.
Keywords: 401k plans; retirement savings; social security; wealth accumulation; lifetime earnings
JEL Codes: G23; J11; J14; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 401k participation rates (D14) | 401k asset accumulation (D14) |
| 401k contribution rates (G51) | 401k asset accumulation (D14) |
| lifetime earnings (J17) | 401k asset accumulation (D14) |
| 401k assets (D14) | defined benefit benefits (J32) |
| 401k assets (D14) | social security wealth (H55) |
| lower-income individuals (I32) | 401k assets (D14) |