Question

What impact would there be on the economy if every American had and implemented a retirement plan?

Answer 1

ANSWER

• Today, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions . This chartbook assesses the impact of the shift from pensions to individual savings by examining disparities in retirement preparedness and outcomes by income, race, ethnicity, education, gender, and marital status.
• The first section of the chartbook looks at retirement-plan participation and retirement account savings of working-age families. The charts in this section focus on families headed by someone age 32–61, a 30-year period before the Social Security early eligibility age of 62 when most families should be accumulating pension benefits and retirement savings.
• The second section looks at income sources for seniors. Since many workers transition to retirement between Social Security’s early eligibility age and the program’s normal retirement age currently 66, formerly 65, the charts in the second section focus on retirement outcomes of people age 65 and older.
• The term “defined-contribution” is somewhat misleading because employers may not contribute anything to these plans, and employer contributions most often take the form of matching contributions contingent on employee contributions. In contrast, under traditional defined-benefit plans in the private sector, employers are generally responsible for the entire cost, though public-sector workers often share in pension costs.
• Most of the charts focus on retirement account savings, a measure that includes savings in 401(k)-style defined-contribution plans, IRAs, and Keogh plans for self-employed people and small-business owners. The measure excludes assets held by defined-benefit pension funds, which are not account-type plans.
• Retirement wealth has not grown fast enough to keep pace with an aging population and other changes. The first chart offers what at first appears to be an encouraging picture, the growth since 1989 in retirement wealth—assets in pension funds plus savings in retirement accounts—relative to income. Unlike other charts in this section, this measure is for the entire population, not just working-age families
• The shift from traditional pensions to individual savings has widened retirement gaps. In addition to retirement wealth not growing fast enough, retirement disparities have grown with the shift from traditional pensions to retirement savings accounts. These disparities are the main focus of this chartbook