Summary
The Impact of Workers' Earnings Profiles on Individual Account Accumulation—This article focuses on the impact of realistic earnings patterns and work histories on individual account accumulation. It does not compare an individual account system with the present system; rather, it compares individual account balance accumulations of workers with different earnings histories. SSASIM is used to provide the estimates of account balances. This model allows for changing workers' earnings patterns as well as changing their work histories.
Asset Allocation: IRAs and 401(k)-Type Plans—As individuals accumulate assets for their retirement, one of the most important decisions, after the first necessity of saving money, is how the assets are invested. The distribution of the savings across stocks, bonds, money market accounts, savings accounts, and other investments is referred to as asset allocation; once money is saved, its allocation (how it is invested) determines how fast it will grow. Equities (stocks) have historically had higher rates of return, over time, than interest-earning investments such as bonds and money market accounts, leading to faster capital accumulation. Because of the critical importance of how retirement savings are invested, the Employee Benefit Research Institute (EBRI) has examined the asset allocation of 401(k) retirement savings plan participants in the past, most recently by using the EBRI/ICI 401(k) participant database. This article supplements that research with data from the Survey of Consumer Finances (SCF), conducted by the Federal Reserve, to study the asset allocation of family heads in both individual retirement accounts (IRAs) and 401(k)-type plans. (The Fed's SCF measures wealth at the family level, so its findings are presented as percentages of American families and/or family heads, rather than all individuals.)