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

40 Pages Posted: 27 Jun 2007 Last revised: 7 Aug 2007

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Steven F. Venti

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: May 2007

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.

Suggested Citation

Poterba, James M. and Venti, Steven F. and Wise, David A., Rise of 401(K) Plans, Lifetime Earnings, and Wealth at Retirement (May 2007). NBER Working Paper No. w13091. Available at SSRN: https://ssrn.com/abstract=986941

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Steven F. Venti

Dartmouth College - Department of Economics ( email )

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Hanover, NH 03755
United States
603-646-2526 (Phone)
603-646-2122 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David A. Wise (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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