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Rise of 401(k) Plans, Lifetime Earnings, and Wealth at Retirement

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13091.

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Date of creation: May 2007
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Publication status: published as The Rise of 401(k) Plans, Lifetime Earnings, and Wealth at Retirement , James M. Poterba, Steven F. Venti, David A. Wise. in Research Findings in the Economics of Aging , Wise. 2010
Handle: RePEc:nbr:nberwo:13091

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  1. James M. Poterba & Steven F. Venti, 1998. "Implications of Rising Personal Retirement Saving," NBER Chapters, in: Frontiers in the Economics of Aging, pages 125-172 National Bureau of Economic Research, Inc.
  2. James Poterba & Steven Venti & David A. Wise, 2007. "The Decline of Defined Benefit Retirement Plans and Asset Flows," NBER Working Papers 12834, National Bureau of Economic Research, Inc.
  3. James M. Poterba & Steven F. Venti & David A. Wise, 2008. "New Estimates of the Future Path of 401(k) Assets," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 43-80 National Bureau of Economic Research, Inc.
  4. James M. Poterba & Steven F. Venti & David A. Wise, 1999. "Pre-Retirement Cashouts and Foregone Retirement Saving: Implications for 401(k) Asset Accumulation," NBER Working Papers 7314, National Bureau of Economic Research, Inc.
  5. James M. Poterba & Steven F. Venti & David A. Wise, 2001. "The Transition to Personal Accounts and Increasing Retirement Wealth: Macro and Micro Evidence," NBER Working Papers 8610, National Bureau of Economic Research, Inc.
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Cited by:
  1. Poterba, James & Rauh, Joshua & Venti, Steven & Wise, David, 2007. "Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth," Journal of Public Economics, Elsevier, Elsevier, vol. 91(10), pages 2062-2086, November.
  2. James Poterba & Steven Venti & David A. Wise, 2007. "The Changing Landscape of Pensions in the United States," NBER Working Papers 13381, National Bureau of Economic Research, Inc.
  3. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "Demographic Trends, Housing Equity, and the Financial Security of Future Retirees," NBER Chapters, in: Demography and the Economy, pages 227-287 National Bureau of Economic Research, Inc.
  4. Tang, Ning & Mitchell, Olivia S. & Mottola, Gary R. & Utkus, Stephen P., 2010. "The efficiency of sponsor and participant portfolio choices in 401(k) plans," Journal of Public Economics, Elsevier, Elsevier, vol. 94(11-12), pages 1073-1085, December.
  5. Jeffrey Thompson & Timothy M. Smeeding, 2010. "Recent Trends in the Distribution of Income: Labor, Wealth and More Complete Measures of Well Being," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp225, Political Economy Research Institute, University of Massachusetts at Amherst.
  6. James Poterba & Steven Venti & David A. Wise, 2007. "New Estimates of the Future Path of 401(k) Assets," NBER Working Papers 13083, National Bureau of Economic Research, Inc.
  7. Ning Tang & Olivia S. Mitchell, 2008. "The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans," Working Papers, University of Michigan, Michigan Retirement Research Center wp176, University of Michigan, Michigan Retirement Research Center.

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