Implications of Rising Personal Retirement Saving

Abstract

A large fraction of American families reach retirement age with virtually no personal financial assets.The median level of all personal financial assets of families with heads aged 55-64 was only $8,300 in 1991; excluding individual retirement accounts (IRAs) and 401 (k) balances the median was only $3,000.Mean values are substantially higher.Almost 20 percent of families had no financial assets at all.In 199 1 , the median value of the future social security benefits of retired families with heads aged 65-70 was about $100,000, the median value of housing was about $50,000, and the median value of future employer-provided pension benefits was about $16,000.But other than social security and pension benefits, and illiquid housing wealth, the typical family has very limited resources to meet unforeseen expenses.Two saving programs introduced in the early 1980s were intended to encourage individual saving.IRAs rapidly became a very popular form of saving in the United States after they became available to all employees in 1982.Any employee could contribute $2,000 per year to an IRA and a nonworking spouse could contribute $250.The contribution was tax deductible.Annual contributions grew from about $5 billion in 1981 to about $38 billion in 1986, approximately 30 percent of total personal saving.Contributions declined precipi-

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