Endowment 75 The integer associated with each variable indicates the average absolute position change each school experienced during testing when that variable was held constant. This sensitivity effect also works in reverse. That is, if the SMI formula had been calculated devoid of tuition to establish a ranking and then real tuition numbers were added back into the formula, each school's position would have changed, on average, by places. Policy makers should note that the higher the sensitivity of an SMI variable, the more likely changes to that variable will advance a school's SMI ranking.
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 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.
Jump to the charts Types of retirement plans k and similar plans are referred to as defined-contribution DC plans because employer contributions, rather than retirement benefits, are determined in advance and employers incur no long-term liabilities.
Participants in these plans are responsible for making investment decisions and shoulder investment and other risks. Though k s took off in the early s, Congress did not intend for them to replace traditional pensions as a primary retirement vehicle, and k s are poorly designed for this role Sahadi ; Tong 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.
Because they are employer-sponsored plans, defined-contribution plans are usually differentiated from Individual Retirement Accounts IRAs. However, the line between employer-sponsored and individual plans is blurry because employers are not required to contribute anything to employee k accounts, because most funds in IRAs are rolled over from k s, and because employers do contribute to some types of IRAs.
Like defined-benefit plans, defined-contribution plans and IRAs receive preferential tax treatment intended to encourage employers to provide retirement benefits and help individuals to save for retirement. However, tax incentives for retirement savings are poorly targeted and ineffectual, as most of the subsidies go to high-income taxpayers who steer savings to tax-favored accounts rather than increase the amount they save see, for example, Chetty et al.
While some k participants may opt to convert account balances to life annuities, and some pension beneficiaries opt to withdraw lump sums at retirement, neither is the normal payout option for these plans.
Conversely, in charts showing the share of families with retirement account savings, respondents and their spouses may or may not be currently participating in a plan—account holdings could be from past participation.
How will working families fare in retirement? The first section of the chartbook looks at the retirement prospects of working-age families, focusing especially on retirement account savings.
Most of the charts focus on retirement account savings, a measure that includes savings in k -style defined-contribution DC 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. In addition to other demographic factors, the charts show trends in retirement preparedness by six-year age group or birth cohort from to Six-year groups were chosen because the Survey of Consumer Finances is conducted every three years, but six-year groups produce larger sample sizes.
All charts use inflation-adjusted dollars and, where possible, are shown on comparable scales. Dollar amounts in charts may reflect rounding by survey respondents.
Key findings of the following charts include: 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 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. As Figure 1 shows, retirement wealth more than kept pace with incomes over the past quarter century, growing faster than income in the s and rebounding after two stock market downturns in the s.
Retirement wealth nearly doubled as a share of personal disposable income between andwith retirement account savings exceeding pension fund assets after and briefly in the late s and mids.
The shift in wealth from pension funds to retirement accounts occurred years after participation in defined-contribution plans surpassed that in defined-benefit plans Figure 2. What Figure 1 does not show is that retirement wealth should have increased more to keep pace with an aging population, offset Social Security cuts, and serve as a hedge against the increased longevity risks and investment risks brought on by a shift from traditional pensions to individual savings.
Retirement account savings increased before the Great Recession as the large baby boomer cohort approached retirement.
However, retirement account savings by age group stagnated or declined in the new millennium even as traditional pension coverage continued to decline Figures Meanwhile, Social Security benefits are replacing a declining share of pre-retirement earnings due to benefit cuts passed in that are gradually taking effect Reno, Bethell, and Walker The change in plan type should have been accompanied by an increase in retirement assets to account for the diminishing use of pooled pension funds, which benefit from economies of scale and risk pooling and are thus more cost-effective than individual accounts.
In other words, in a retirement savings account system, people need to set aside more, because these accounts are not as efficient as pensions.Our country has suffered from rising income inequality and chronically slow growth in the living standards of low- and moderate-income Americans.
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As the United States rapidly becomes both a more diverse and unequal nation, policymakers face the urgent challenge of confronting growing wealth gaps by race and ethnicity. To create a more equitable and secure future, we must shift away from public policies that .
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