December 25, 2016


Middle Class Retirement Accounts at Record Levels. Low-Income Households Still Saving Little. (Andrew G. Biggs, 12/23/16, AEIdeas)

Thomas Piketty and Emmanuel Saez are two French economists who are beloved by the American left. Their work on income inequality and rising disparities in wealth have motivated U.S. progressives to call for greater redistribution throughout the economy. And Piketty and Saez's work aggregating data on income trends over many decades has earned them respect even among researchers who may not agree with all of their conclusions. But in new work published with their colleague Gabriel Zucman, Piketty and Saez released data showing rapidly rising retirement savings for the U.S. middle class. Middle class Americans have never before held so much wealth in retirement plans such as 401(k)s, defined benefit pension plans and IRAs. [...]

The Piketty, Saez and Zucman data provide running totals of assets held in retirement plans, including traditional defined benefit (DB) pensions, defined contribution (DC) pensions such as 401(k)s and 403(b)s, and individual retirement accounts (IRAs). From their data, I calculated a fairly simple measure of retirement saving adequacy: assets held in retirement plans as a percentage of annual incomes (specifically, I measure income here as employee compensation, leaving out earnings on investments to avoid double-counting).

The idea is that people build savings so they can replace their annual salaries once they hit retirement. There's no firm idea of how big a ratio of savings to earnings you need - I suspect it's lower than many financial companies claim. But we can look at the direction of retirement assets as a percentage of annual incomes; if it's stagnant, Americans may not have enough savings to last through longer retirement. If ratios are falling, then Americans may indeed face a retirement crisis.


In fact, retirement plan savings for middle class U. S. households have increased dramatically over time, even when measured against the growth of the annual incomes these savings are meant to replace. For the middle class - measured as the middle 40 percent of the population - retirement plan savings rose from 33 percent of annual incomes in 1970; to 53 percent in 1980; to 101 percent in 1990; to 168 percent in 2000; to 210 percent in 2014. There are occasional short-term declines coinciding with large stock market downturns, but the broader trend is toward higher retirement savings.

Posted by at December 25, 2016 9:23 AM