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Pension Accounting & Personal Saving

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Author Info
Annamaria Lusardi () (Center for Retirement Research at Boston)
Jonathan Skinner
Steven Venti

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Abstract

In the past two decades, the personal saving rate in the United States has declined dramatically, from 10.6 percent of disposable personal income in 1984 to a low of 2.3 percent in 2001, before bouncing back to 3.9 percent in 2002 (U.S. Department of Commerce, 2003). There is considerable debate over the reasons for this decline in the personal saving rate, as calculated by the National Income and Product Accounts (NIPA), as well as its usefulness as an indicator of saving. Many observers have questioned the influence of stock market wealth on conventionally measured personal saving rates and have noted three major ways in which the stock market and saving may be linked. One way in which the stock market can affect personal saving, which is the focus of this brief, has to do with the treatment of pension plans in the NIPA. We show that dramatic swings in asset markets have perverse effects on the personalsaving rate. Indeed, according to the official NIPA accounting rules, the entire retirement saving sector contributed nothing to measured personal saving between 1996 and 2000. The analysis discussed in this piece covers the years 1988-2000, a time when the stock market was booming and personal saving rates were dropping. While the conditions have reversed with the onset of the bear market in 2000, understanding the experience of the 1990s offers key insights into what is happening today.

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Paper provided by Center for Retirement Research in its series Just the Facts with number jtf8.

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Date of creation: 24 Apr 2003
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Handle: RePEc:crr:jusfac:jtf8

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References listed on IDEAS
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  1. Annamaria Lusardi & Jonathan Skinner & Steven F. Venti, 2001. "Saving Puzzles and Saving Policies in the United States," JCPR Working Papers 220, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  2. B. Douglas Bernheim & John B. Shoven, 1985. "Pension Funding and Saving," NBER Working Papers 1622, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • B. Douglas Bernheim & John B. Shoven, 1988. "Pension Funding and Saving," NBER Chapters, in: Pensions in the U.S. Economy, pages 85-114 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Ippolito, Richard A, 2001. "Reversion Taxes, Contingent Benefits, and the Decline in Pension Funding," Journal of Law & Economics, University of Chicago Press, vol. 44(1), pages 199-232, April.
  4. Alicia H. Munnell & Annika Sunden & Elizabeth Lidstone, 2003. "How Important Are Private Pensions?," Issues in Brief ib-8, Center for Retirement Research. [Downloadable!]
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  1. Peter Fortune, 2005. "Pension accounting and corporate earnings: the world according to GAAP," Public Policy Discussion Paper 06-2, Federal Reserve Bank of Boston. [Downloadable!]
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