Skip to main content

You are here

Advertisement

Nearly Three Decades of Retirement Savings Growth, Says Analysis

Practice Management
How about a little good news? A recent analysis that draws on data from two sources offers insights on retirement savings over nearly 30 years and prospects for the future that bode well.
 
In “Changes to Household Retirement Savings Since 1989,” American Enterprise Institute Resident Scholar Andrew Biggs looks at information from:
 
  • the Federal Reserve’s Distributional Financial Accounts (DFA), through which it provides estimates of household savings in retirement accounts and benefits accrued under: (1) a pension, (2) employer-sponsored retirement accounts, such 401(k)s and 403(b)s and (3) the value of annuities and other retirement-related insurance contracts;
  • the Federal Reserve’s Survey of Consumer Finances (SCF);
  • SCF measures of IRA and Keogh account balances, combined with the DFA measures, in order to account for retirement savings in IRAs; and
  • data from the Social Security Administration’s Model of Income in the Near Term (MINT).
Biggs also takes Social Security into account. “It is difficult to assess levels of adequacy of different households’ overall retirement savings without also knowing the future Social Security benefits to which those households are entitled,” he says. He notes that unlike private retirement savings, which disproportionately accrue to higher-earning households, lower-income households hold a disproportionately high amount of wealth from the Social Security system. 
 
Positive Trajectory
 
Biggs concludes in his analysis that by more than one measure, retirement savings have been—and will continue to be—on a positive trajectory.
 
Biggs writes that according to the DFA data, during the 27-year period 1989-2016 household retirement savings grew for “every age, income, race, or educational group.” He cites a variety of statistics:
 
By Age
 
 
Age Group Real Household Income Savings, 1989 Real Household Income Savings, 2016 Percentage Increase Above Inflation
40 and Younger $35,095 $51, 614 47%
4054 $145,253 $219,263 51%
55-69 $198,577 $448,292 126%
70 and older $73,863 $319,261 332%

 


As a Percentage of Annual Earnings
 
 
Age Group Relative Increase in Retirement Savings as a Percentage of Annual Earnings, 1989-2016
40 and Younger                                              42%
40-54                                             38%
55-69                                             20%

 

By Income Level
 
Income Group Real Household Income Savings, 1989 Real Income Savings, 2016 Percentage Increase Above Inflation
Lowest $11,912 $15,269 28%
Middle $73,364 $124,463 70%
Highest $545,649 $998,720 83%
 
Education Level of Head of Household
 
Education Level Real-Dollar Savings Increase, 1989-2016 Increase in Retirement Savings as a Percentage of Annual Household Earnings 
No high school diploma +56% +46%
High School Diploma +73% +73%
Some college +92% +92%
Bachelor's Degree or More +115% +115%
 
Furthermore, Biggs adds, it made no difference whether savings were considered as inflation-adjusted funds or through the lens of the ratio of retirement savings to annual earnings—there was growth either way. Not only that, he notes, the MINT model suggests that the retirement income of retirees in the future will be similar to current retirees’ income.
 
These results, Biggs notes, stand in contrast to much conventional wisdom about retirement income and the prospects for retirees. “Together, the best data on retirement savings and the more sophisticated projections of future retirement incomes present a much more positive picture of U.S. households’ preparation for retirement than is commonly found in media reports or public opinion polls,” he writes.