Summary
Total Individual Account Retirement Plan Assets, by Demographics, 2007, With Market Adjustments to March 2010
IMPORTANCE OF INDIVIDUAL ACCOUNT RETIREMENT PLANS: Workers’ participation in a retirement plan, either through an employment-based arrangement or individually, is a crucial factor in accumulating sufficient resources to pay for expenses in retirement. This article examines the distribution of total assets held in individual account retirement plans (401(k)-type plans, IRAs, and Keogh plans) across various demographic characteristics of American families, based on the latest data from the Federal Reserve’s Survey of Consumer Finances.
EMPLOYMENT-BASED ACCOUNTS DOMINANT: Total individual account retirement assets amounted to $8.979 trillion in 2007. Employment-based plan assets ($4.823 trillion) exceeded individual retirement account/Keogh account assets ($4.157 trillion) by $0.666 trillion. Approximately 70 percent of the employment-based retirement plan assets were held by families headed by individuals ages 45?64. The largest concentration of IRA and Keogh assets is held by families with heads in the next oldest age group (ages 55?74), who own just over 60 percent of these assets.
CONCENTRATION OF RETIREMENT VS. OVERALL ASSETS: Retirement plan assets are less concentrated than overall financial assets in many categories. For example, families with white, non-Hispanic heads owned 85.1 percent of active employment-based individual account retirement plan assets, compared with 91.9 percent of all financial assets. Families in the top 10 percent of net worth held 50.0 percent of these active employment-based retirement assets, compared with 72.3 percent of all financial assets.
Retirement Annuity and Employment-Based Pension Income, Among Individuals Age 50 and Over: 2008
LIFETIME INCOME IN RETIREMENT: Whether or not a worker receives a retirement annuity and/or employment-based pension income in retirement is strongly affected by demographics: Married white males with higher education have a much greater chance of having lifetime income in retirement from an annuity or pension.
FUTURE TRENDS: Future retirees will likely be more reliant on assets they must manage themselves. Fewer workers are participating in a defined benefit (pension) plan, which used to almost always pay benefits in the form of an annuity upon retirement. Also, an increasing number of DB plans offer a lump-sum distribution at retirement, and more employees participate in a defined contribution (DC) plan, primarily a 401(k) plan. This trend has had a positive impact, in that many workers who previously had no retirement plan at all now at least have access to a tax-favored plan. However, DC plans are far less likely to offer an annuity option to retirees than are DB plans.