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Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions

March 19, 2015 Comments off

Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions
Source: Center for Retirement Research at Boston College

The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which was enacted in 2001 and allows workers over age 50 to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. Compared with similar workers under age 50, the study finds that contributions increased by $540 more among age-50-plus individuals who had approached the 401(k) tax-deferral limits prior to turning 50, suggesting that the older individuals respond to the expanded tax incentives. For this group, the elasticity of retirement savings to the tax incentive is quite high: a one-dollar increase in the tax-deferred limit leads to an immediate 49-cent increase in 401(k) contributions.

Are Retirees Falling Short? Reconciling the Conflicting Evidence

March 18, 2015 Comments off

Are Retirees Falling Short? Reconciling the Conflicting Evidence
Source: Center for Retirement Research at Boston College
<blockquote
The brief‘s key findings are:

  • Federal Reserve data show that retirement preparedness has been declining over time, but studies on the level of preparedness offer conflicting assessments.
  • The National Retirement Risk Index (NRRI) finds half of households are “at risk,” while studies of optimal savings suggest less than one-tenth will fall short.
  • The optimal savings results depend crucially on two assumptions:  households spend less when their kids leave home (the NRRI assumes no decline); and households plan for declining consumption in retirement (the NRRI assumes steady consumption).
  • While the issue remains unsettled, the Federal Reserve data are consistent with the NRRI finding that retirement shortfalls are a growing problem.

Retirement Savings Levels Continue to Worsen

March 16, 2015 Comments off

Retirement Savings Levels Continue to Worsen
Source: National Institute on Retirement Security

A new research report calculates that the U.S. retirement savings crisis continues to worsen, and that the typical working household still has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $2,500. The median retirement account balance was $3,000 for all working-age households as reported in a previous 2013 report.

For near-retirement households, the new analysis finds that the median retirement account balance is $14,500. Also, some 62 percent of working households age 55-64 have retirement savings less than one times their annual income, which is far below what Americans need to be self-sufficient in retirement.

UK — 2014 Annual Survey of Hours and Earnings: Summary of Pensions Results

March 10, 2015 Comments off

2014 Annual Survey of Hours and Earnings: Summary of Pensions Results
Source: Office for National Statistics

Key points

  • Workplace pension scheme membership has increased to 59% in 2014, from 50% in 2013, driven by increases in membership of occupational defined contribution and group personal and group stakeholder schemes.The increase is likely to be driven by automatic enrolment.
  • Occupational defined benefit pensions schemes represented less than half (49%) of total workplace pension membership in 2014, for the first time since the series began in 1997.
  • Pension membership increased in all age groups in 2014 compared with 2013, with the largest increase (17 percentage points, to 53%) in the age group 22-29.
  • In the private sector, 33% of employees with workplace pensions made contributions of greater than zero but under 2% compared with 11% of employees in 2013. The increase is likely to be driven by automatic enrolment.
  • The proportion of employees in the private sector receiving employer contributions of greater than zero and under 4% was 43% in 2014, compared with 22% in 2013. The increase may be explained by new members who have been automatically enrolled into a workplace pension with lower initial employer contributions until the phasing of contributions is completed in 2018.

CRS — Traditional and Roth Individual Retirement Accounts (IRAs): A Primer (February 12, 2015)

March 5, 2015 Comments off

Traditional and Roth Individual Retirement Accounts (IRAs): A Primer (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

This report describes the primary features of two common retirement savings accounts that are available to individuals. Although the accounts have many features in common, they differ in some very important aspects. Both traditional and Roth IRAs offer tax incentives to encourage individuals to save for retirement. Contributions to traditional IRAs may be tax-deductible for taxpayers who (1) are not covered by a retirement plan at their place of employment or (2) have income below specified limits. Contributions to Roth IRAs are not tax-deductible and eligibility is limited to those with incomes under specified limits.

Older Women Workers and Economic Security

March 3, 2015 Comments off

Older Women Workers and Economic Security (PDF)
Source: U.S. Department of Labor, Women’s Bureau

How and why does the gender wage gap vary by age? How do earnings for older women differ by race and ethnicity? What is the impact of the gender wage gap and caregiving responsibilities on women’s lifetime earnings and their retirement savings? What can be done to tackle the gender wage gap and improve women’s lifetime earnings?

Success Strategies for Well-Funded Pension Plans

February 26, 2015 Comments off

Success Strategies for Well-Funded Pension Plans
Source: Center for State and Local Government Excellence

The Center for State and Local Government Excellence examined the public pension systems in four states with a long tradition of being well-funded to determine what they have in common. The plans studied are: Delaware Public Employees’ Retirement System, Illinois Municipal Retirement Fund, Iowa Public Employees’ Retirement System, and North Carolina Retirement Systems.

While each of the defined benefit plans has a unique history and legal framework, they share these practices:

+ a commitment to fund the annual required contribution in both good and bad financial times;
+ conservative, realistic assumptions that are adjusted based on experience; and
+ changes to benefit levels and contribution rates as needed.

The funded ratio for the plans studied ranges from 87.6 percent to 99.8 percent.

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