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Monday, May 13, 2013

U.S. Household Savings for Retirement in 2010

John J. Topoleski
Analyst in Income Security

Whether households have sufficient savings from which to ensure adequate income throughout retirement is a concern of households and, therefore, policymakers. The retirement income landscape has been changing over the past few decades. Although most households are eligible to receive Social Security benefits in retirement, over the past 30 years, the types of non-Social Security sources of retirement income have been changing. About half of the U.S. workforce is covered by an employer-sponsored pension plan. An increasing number of employers offer defined contributions (DC) pension plans (i.e., tax-advantaged accounts in which employee, and sometimes employer, contributions accrue investment returns) in lieu of traditional defined benefit (DB) pension plans (i.e., monthly payments to a retiree by a former employer). This shift in the nature of employer-sponsored pensions places more responsibility on workers to financially prepare for their own retirement. Households also save for retirement using Individual Retirement Accounts (IRAs), into which contributions, up to a specified limit, are tax-deductible for individuals without an employer-sponsored pension or who have an employer-sponsored pension and who earn less than specified limits.

Congress has several reasons for its interest in the retirement preparedness of American households: income from Social Security may be insufficient to provide for an adequate standard of living in retirement for U.S. households; congressional actions may encourage or discourage employer and household efforts to provide for their own well-being in retirement; and the U.S. Treasury will forego $117 billion in FY2013 as a result of tax policies that are designed to encourage employer and worker retirement savings. President Obama’s FY2014 budget would prohibit contributions to DC pension plans and IRAs that have a value over $3.4 million. This threshold is specified to be equivalent to the maximum annual payment allowed from a DB pension plan, which is $205,000 in 2013.

This report provides data on a variety of household wealth measures in 2010 from the Federal Reserve’s triennial Survey of Consumer Finances. Although the amount of retirement assets is the primary focus of the report, other measures of wealth (such as the amount of total assets, financial assets, total debt, net worth, and housing equity) are also included. The report classifies the amount of assets and debt by the age of the head of the household for both single and married households. In general, the amount of household wealth is higher for married households than for single households. Household wealth generally increases as the age of the head of the household increases, although some measures decrease for those households in which the head of the household is aged 75 or older. In general, the median values are less than the average values, which is an indication that some households hold relatively large amounts of wealth compared with most households.

Among households with retirement assets, households in which the head is younger than 55 years old are more likely to own DC pension plan assets than they are likely to own assets from IRAs, whereas households in which the head is aged 55 or older are more likely to have IRA assets.

Ownership of a principal residence is likely to be a factor that affects the accumulation of retirement assets. An important saving goal for younger households is home ownership, whereas preparing for retirement is an important saving goal for older households. As the age of the head of the household increases, the percentage of assets represented by the household’s principal residence decreases, although there is not a discernible pattern to the percentage of wealth that retirement assets represent.

Date of Report: April 30, 2013
Number of Pages: 24
Order Number: R43057
Price: $29.95

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