401(k)/IRA Holdings in 2019: An Update from the SCF

Though the economy has been overtaken by COVID-19 and the ensuing recession, the Federal ReserveÕs 2019 Survey of Consumer Finances (SCF) still provides a useful update on how retirement balances fared between 2016 and 2019 Ð three years of solid economic growth, strong stock market returns, and continued maturation of the 401(k) system. And given that the market is modestly higher in 2020 and most job losses have been borne by lower-paid workers without retirement plans, 2019 balances may not be dramatically different from today. The big advantage of the SCF is that it provides information not only on 401(k) balances, much of which is available from financial services firms, but also on household holdings in IRAs, which are largely rollovers from 401(k)s. This brief reports on household holdings in these two sources combined. The discussion proceeds as follows. The first section describes the importance of 401(k) plans and IRAs in the retirement income system. The second section documents the trend in individual decisions regarding the accumulation of assets in 401(k)s. The good news is a slight increase in participation rates and greater use of target date funds; the bad news is the lack of universal coverage, flat total contribution rates, high fees, and significant leakages. The third section reports on 401(k)/IRA balances. The SCF shows Ð for households approaching retirement Ð an increase in these balances from $135,000 in 2016 to $144,000 in 2019. These balances will provide a couple with only $570 per month in retirement. Moreover, only about half of households have 401(k)/IRA balances; and, as defined benefit plans phase out in the private sector, the rest will have no source of retirement income other than Social Security. The final section concludes that todayÕs 401(k) system provides meaningful benefits only for the top two quintiles of the income distribution and that, for the employer-sponsored system to work effectively, coverage must be universal.