Order Code RL30922
CRS Report for Congress
Received through the CRS Web
Retirement Savings and Household Wealth in 2000:
Analysis of Census Bureau Data
Updated December 12, 2002
Patrick J. Purcell
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress ˜ Washington DC, 20540

---

Retirement Savings and Household Wealth in 2000:
Analysis of Census Bureau Data
Summary
Pension analysts refer to Social Security, employer-sponsored retirement plans,
and personal savings as the “three-legged stool” of retirement income, but for many
workers at least one of the legs is missing. Coverage under Social Security is nearly
universal, but access to employer-sponsored retirement plans is limited. Among
wage and salary workers 25 to 64 years old, only 64% worked for an employer that
sponsored a retirement plan in 2001. Almost 41 million people between the ages of
25 and 64 worked for an employer that did not offer a retirement plan, and another
12 million worked for employers that offered retirement plans, but were not included
in those plans. Consequently, only 53% of wage and salary workers between the ages
of 25 and 64 actually participated in an employer-sponsored retirement plan in 2001.
Moreover, more workers participate in savings and thrift plans than in traditional
pension plans that provide a guaranteed lifelong income. A key characteristic of
these savings plans is that the worker must decide whether to contribute to the plan,
how much to contribute, and how to invest the funds.
Data collected by the Census Bureau through its Survey of Income and Program
Participation (SIPP) show that during an average month in 2000, approximately 113
million people between the ages of 25 and 64 worked for pay, including workers
employed full-time and those who worked part-time, workers in the private sector
and those in the public sector, workers who were self-employed and those who
worked for others. An estimated 47.1 million of these workers (41.8%) owned one
or more retirement accounts, including IRAs, Keogh accounts, 401(k) accounts and
other employer-sponsored savings or thrift plans. Of these 113 million workers, 34.8
million (30.9%) owned a 401(k)-type plan, 21.4 million (19.0%) owned an IRA or
Keogh plan (mostly IRAs), and 9.1 million (8.1%) owned both an IRA/Keogh and
a 401(k) plan. An estimated 65.6 million workers between the ages of 25 and 64
(58.2%) did not own a retirement savings account of any kind.
Among the 47.1 million workers who owned a retirement savings account of
any kind in 2000, the mean value of all such accounts owned by the workers
themselves was $45,960. The median value of all the workers’ accounts was
$18,000. (Half of the workers owned accounts totaling more than $18,000 and half
owned accounts with a total value of less than $18,000.) When all of the retirement
accounts owned by the workers and other members of their households were
combined, the mean value was $71,040 and the median value was $31,000. An
estimated 7.0 million workers between the ages of 55 and 64 - 50% of all workers in
this age category - owned at least one retirement account in 2000. The mean value
of these workers’ accounts was $71,910, and the median value was $33,000. The
mean value of all retirement accounts owned by these workers and other members
of their households was $107,040, and the median value was $56,000. The median
value of these workers’ household retirement assets - $56,000 - would purchase a
level joint-and-survivor annuity worth just $332 per month at current rates of interest.
When those who owned no retirement accounts are included, 75% of workers 55 to
64 years old lived in households with retirement savings of between zero and
$56,000 in 2000.

---

Contents
Background: America’s Aging Population . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Saving, Wealth, and Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recent Trends in Personal Saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Congress and Retirement Saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The “Economic Growth and Tax Relief Reconciliation Act” . . . . . . . . 4
Pension Plans and Retirement Savings Plans . . . . . . . . . . . . . . . . . . . . . . . . 5
Worker participation in voluntary plans . . . . . . . . . . . . . . . . . . . . . . . . 8
Worker Ownership of Retirement Accounts in 2000 . . . . . . . . . . . . . . . . . . . 8
Estimating workers’ retirement account balances . . . . . . . . . . . . . . . . . 9
The Survey of Income and Program Participation . . . . . . . . . . . . . . . . . 9
Retirement Wealth of Workers 25 to 64 Years Old . . . . . . . . . . . . . . . . . . . 10
Defining the terms of the analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Summary of thrift plan ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Retirement account balances by type of account . . . . . . . . . . . . . . . . . 12
Retirement account balances by age of worker . . . . . . . . . . . . . . . . . . 15
Average household wealth in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appendix: Statistical Analysis of Account Balances . . . . . . . . . . . . . . . . . 20
Factors related to workers’ retirement account balances . . . . . . . . . . . 20
Account balances for all members of the worker’s household . . . . . . 23
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
List of Tables
Table 1. Personal Income and Personal Saving, 1960-2001 . . . . . . . . . . . . . . . . . 3
Table 2. Employer-sponsored Retirement Plans in 2001 . . . . . . . . . . . . . . . . . . . 5
Table 3. Number of 401(k)-type Plans, Participants, and Assets, 1984-1998 . . . 7
Table 4. Worker Ownership of Retirement Accounts, 1999 and 2000 . . . . . . . . 12
Table 5. Retirement Account Balances of Workers 25 to 64 Years old,
1999 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 6. Retirement Account Balances of Workers in 2000,
by Age of Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 7. Household Wealth and Household Debt of Workers in 2000,
by Age of Worker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table A1. Results of OLS Regression on Cumulative Value of Retirement
Accounts Owned by Individual Workers in 2000 . . . . . . . . . . . . . . . . . . . . 22
Table A2. Results of OLS Regression on Value of All Retirement
Accounts Owned by Persons in Workers’ Households in 2000 . . . . . . . . . 24
Table A3. Worker Ownership of 401(k)-type Accounts in 2000 . . . . . . . . . . . . 25
Table A4. Worker Ownership of Individual Retirement Accounts in 2000 . . . . 26

---

Retirement Savings and Household Wealth
in 2000: Analysis of Census Bureau Data
Background: America’s Aging Population
The aging of the American population and the impending retirement of the
“baby boom” will place significant strains over the next several decades on both
Social Security and on retirees’ own financial resources. The decline in birth rates
since the 1960s, coupled with longer life spans, will result in fewer workers relative
to the number of retirees. Consequently, Social Security benefits will have to be
financed by a working population that is shrinking relative to the number of retirees.
With continued increases in average life expectancies, retirees in the 21st century will
have to stretch their savings and other assets over longer periods of retirement than
were experienced by their parents and grandparents.
Americans are living longer then ever before. The average life
expectancy of Americans born in 1960 was 69.7 years. It has been estimated that
those who were born in 2000 will live for an average of 76.4 years.1 A man who
reached age 65 in 1960 could expect to live another 13 years, while a woman who
turned 65 had a remaining life expectancy of 16 years. A man who reached age 65
in 2000 could expect to live another 15.6 years, while a woman who turned 65 in
2000 had a remaining life expectancy of 19.4 years. As more people live into old
age, the age-profile of the population will shift. In 1960, 16.7 million people in the
United States (9.2% of the population) were age 65 or older. In 2000, there were
35.0 million Americans age 65 or older, representing 12.4% of the population. By
2025, according to projections made by the Bureau of the Census, there will be 62
million people age 65 or older, comprising 18.5% of the U.S. population.
These demographic trends will strain the components of the traditional “three-
legged stool” of retirement income: Social Security, pensions, and personal saving.
The Social Security Board of Trustees has estimated that the Social Security trust
fund will be exhausted by 2041 unless actions are taken to preserve it.2 Pensions are
the second largest source of income among the elderly, after Social Security, but only
half of all workers in the United States have pension coverage through their jobs.
Moreover, the traditional pension that provides a lifelong annuity is becoming less
common. Today, more workers participate in savings and thrift plans than in
traditional pension plans. A key characteristic of these savings plans is that the
worker must actively participate, deciding whether to contribute to the plan, how
much to contribute, and how to invest the funds. Workers who do not choose to
save, or who save too little, may face straitened circumstances in retirement.
1U.S. National Center for Health Statistics, Vital Statistics of the United States.
2Social Security and Medicare Boards of Trustees, Status of the Social Security and
Medicare Programs: A Summary of the 2002 Annual Reports, Washington DC, March 2002.

---

CRS-2
Saving, Wealth, and Retirement
According to a widely held theory of savings behavior, individuals plan their
spending and saving over long periods, and the principal reason that they save is to
provide for consumption during old age.3 Of course, people also save for other
reasons: to make a down payment on a car or home, to finance their children’s
education, or to have funds available in the event of job loss, for example.
Nevertheless, providing for one’s retirement is one of the strongest motivations for
saving.
Social Security and employer-sponsored pension plans both are forms of
retirement savings. Although Social Security payroll taxes are not set aside in
individual accounts for the workers from whom they are collected, they entitle each
participant to receive benefits when he or she reaches the age of eligibility or
becomes disabled.4 Traditional defined benefit pensions also are a form of
retirement savings, even though these plans are usually financed entirely by the
employer. Economic theory suggests that each dollar that the employer contributes
to the company pension plan represents a dollar that otherwise would have been paid
to workers as wages or other benefits. Today, many workers participate in defined
contribution plans to which the employer and the employee both contribute funds.
These contributions, too, represent retirement savings.
Personal saving not only helps individuals to provide for consumption during
retirement, it also contributes to the pool of funds available for investment in physical
plant, capital goods, research and development, worker training, and other activities
that promote economic growth. By contributing to the growth of the economy,
saving helps to raise the level of personal income, which in the long run makes the
cost of financing retirement programs like Social Security relatively less burdensome
on workers. Personal saving represents just one source of funds available to finance
investment. Businesses, governments, and foreign investors also are sources of funds
for investment. Businesses save when earnings are retained for future investment,
rather than being distributed as dividends to shareholders. Governments save when
they run budget surpluses. Foreign investors supply savings whenever they invest
more in the United States than Americans invest abroad.
3 See Franco Modigliani’s Nobel Prize lecture “Life Cycle, Individual Thrift, and the Wealth
of Nations” in the American Economic Review, vol. 86 no. 3, (June 1986).
4 Some Social Security reform proposals would establish individually-owned accounts to be
funded by “carving out” part of the payroll tax to be diverted to each participant’s account.
In any case, the long-term unfunded liability of Social Security will need to be addressed
by tax increases, benefit cuts, or by investing some of the trust fund in potentially higher-
yielding (but more volatile) private-sector assets.

---

CRS-3
Recent Trends in Personal Saving
Table 1 shows disposable personal income, personal saving, and the savings
rate for selected years from 1960 to 2001.5 In recent years, the personal savings rate
(the percentage of personal disposable income not devoted to current consumption)
has declined substantially. Whether the recent decline in the personal savings rate
will eventually reduce the rate of growth of the economy is a matter of debate among
economists. Some believe that the personal savings rate is a flawed measure of
saving because it focuses only on saving from current income - ignoring increases in
wealth that result from capital gains - and because it reflects only the savings
behavior of households and thus does not take into account the savings behavior of
businesses and government. Other economists consider the problem to be serious,
in part because the low rate of saving by households in the U.S. increases our reliance
on foreign investment, which represents a claim by other nations on the productive
output of the economy. To the extent that the profits generated by foreign capital are
repatriated to the countries that were the sources of the funds, this form of investment
contributes less to long-run economic growth in the U.S. than would result from an
equal amount of investment financed by domestic saving.
Table 1. Personal Income and Personal Saving, 1960-2001
(Amounts in billions)
Disposable
Personal
Personal
Savings
Year
Income
Saving
Rate
1960
$366.2
$26.4
7.2%
1965
498.9
42.7
8.6%
1970
736.5
69.5
9.4%
1975
1,181.4
125.2
10.6%
1980
2,019.8
205.6
10.2%
1985
3,086.5
282.6
9.2%
1990
4,293.6
334.3
7.8%
1995
5,422.6
302.4
5.6%
1996
5,677.7
272.1
4.8%
1997
5,968.2
252.9
4.2%
1998
6,355.6
301.5
4.7%
1999
6,618.0
160.9
2.4%
2000
7,120.2
201.5
2.8%
2001
7,393.2
169.7
2.3%
Source: U.S. D epa rtmen t of Co mm erce, B ureau of Ec ono mic A nalysis
5 Disposable personal income is personal income minus taxes and non-tax payments.
Personal saving is disposable personal income minus personal consumption expenditures,
interest payments, and personal transfers to persons outside the United States.

---

CRS-4
Congress and Retirement Saving
Congress has acted several times over the years to encourage workers to save
for retirement, mainly by allowing income taxes to be deferred on amounts that
workers and/or their employers contribute to certain types of savings plans
established to prepare for retirement. For example:
! The Technical Amendments Act of 1958 (P.L. 85-866) added section 403(b)
to the Internal Revenue Code, which authorized deferral of taxes on employer
and employee contributions to retirement plans for employees of religious,
charitable, educational, research, and cultural organizations.
! The Self-Employed Individuals Tax Retirement Act of 1962 (P.L. 87-792)
authorized Keogh Plans (after Rep. Eugene J. Keogh of New York), tax-
deferred retirement savings plans for people who are self-employed.
! The Employee Retirement Income Security Act of 1974 (P.L. 93-406)
authorized Individual Retirement Accounts (IRAs) in which eligible
contributions and investment earnings are tax-deferred.
! The Taxpayer Relief Act of 1997 (P.L. 105-34) authorized the Roth IRA,
which accepts only after-tax contributions but provides for tax-free
distributions.
! The Revenue Act of 1978 (P. L. 95-600) added section 401(k) to the Internal
Revenue Code. Both the employer and employee can make pre-tax
contributions to these retirement plans, and earnings are tax-deferred.
! The Revenue Act of 1978 also added section 457 to the Internal Revenue Code
to permit state and local government employees to defer income taxes on a
portion of salary that is deposited into a retirement plan.
The “Economic Growth and Tax Relief Reconciliation Act”. On June
7, 2001, the President signed the Economic Growth and Tax Relief Reconciliation
Act of 2001 (“EGTRRA”). This law increased the maximum annual contribution to
an IRA to $3,000 in 2002, 2003, and 2004; to $4,000 in 2005, 2006, and 2007, and
to $5,000 in 2008, after which it will be indexed to inflation in $500 increments. For
individuals age 50 and older, the maximum allowable contribution to an IRA is
higher by an additional $500 in 2002 through 2005 and by $1,000 in each year
thereafter. EGTRRA also increased the maximum employee salary deferral under
Internal Revenue Code section 401(k) to $11,000 in 2002 and by an additional
$1,000 each year through 2006, when it will reach $15,000. After 2006, the
maximum deferral will be indexed to inflation. The maximum contribution to
retirement plans under I.R.C. sections 403(b) and 457 also have been increased to the
amount permissible under section 401(k). EGTRRA also allows individuals who are
age 50 or older to make additional contributions to retirement plans authorized under
sections 401(k), 403(b), or 457 of the tax code. The maximum permissible additional
contribution is $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, and
$5,000 in 2006. This amount is indexed to inflation in years after 2006.

---

CRS-5
Pension Plans and Retirement Savings Plans
Pension analysts often refer to Social Security, employer-sponsored retirement
plans, and personal savings as the “three-legged stool” of retirement income, but for
many workers at least one of the legs is missing. Coverage under Social Security is
nearly universal, but access to employer-sponsored retirement plans is limited. Data
from the Census Bureau’s Current Population Survey indicate that, among wage and
salary workers 25 to 64 years old, only 64% worked for an employer that sponsored
a retirement plan in 2001.6 (See Table 2). Almost 41 million people between the
ages of 25 and 64 worked for an employer that did not offer a retirement plan in
2001, and another 12 million worked for employers that offered retirement plans, but
were not included in those plans. Consequently, only 53% of wage and salary
workers between the ages of 25 and 64 actually participated in an employer-
sponsored retirement plan in 2001.
Table 2. Employer-sponsored Retirement Plans in 2001
Wage and salary workers, 25 to 64 years old
(Numbers in thousands)
Does worker’s employer sponsor a retirement plan?
Yes
No
Number
Percent
Number
Percent
Total
72,321
63.9%
40,931
36.1%
113,252
Is this worker included in the retirement plan?
Yes
No
Number
Percent
Number
Percent
Total
60,151
53.1%
53,101
46.9%
113,252
Source: CRS analysis of data from the March 2002 Current Population Survey.
Trends in retirement plan design. Over the past 25 years, there has been
a shift in the distribution of pension plans and of pension plan participants from
defined benefit plans to defined contribution plans. In a defined benefit or “DB”
plan, the retirement benefit is usually paid as a lifelong annuity based on the
employee’s length of service and average salary in the years immediately preceding
retirement. DB plans are funded by employer contributions to a pension trust. These
contributions must be sufficient to pay the pension benefits that workers accrue each
year. In a defined benefit plan, the investment risk is borne by the employer. If the
value of the pension trust is not equal to the present value of the accrued pension
6 A “retirement plan” could be a traditional defined benefit pension or a defined contribution
plan. Some employees participate in both types of plan simultaneously.

---

CRS-6
obligations, the plan’s sponsor is required to make up this shortfall - called an
unfunded liability - through additional contributions over a period of years.7
A defined contribution or “DC” plan is much like a savings account maintained
by the employer on behalf of each participating employee. The employer contributes
a specific dollar amount or percentage of pay, which is invested in stocks, bonds, or
other assets. The employee usually contributes to the plan, too. In a defined
contribution plan, it is the employee who bears the investment risk: at retirement, the
balance in the account is the sum of all contributions plus interest, dividends, and
capital gains (or losses). The account balance can be converted to a lifelong annuity
or taken as a series of fixed payments over a period of years, but is most often
distributed as a single lump sum. Many large employers recently have converted
their traditional DB pensions to hybrid plans that have characteristics of both DB and
DC plans, the most popular of which has been the cash balance plan. In a cash
balance plan, the accrued benefit is defined in terms of an account balance. The
employer makes contributions to the plan and pays interest on the accumulated
balance. However, these account balances are merely bookkeeping devices. They
are not individual accounts owned by the participants. Legally, therefore, a cash
balance plan is a defined benefit plan.
In 1975, there were 103,346 defined benefit plans in the United States with 27.2
million participants. That same year, there were 207,748 defined contribution plans
with 11.2 million participants. By 1998, the number of defined benefit plans had
fallen to 56,405 and the number of active participants in these plans had declined to
23.0 million. Also by 1998, the number of defined contribution plans had risen to
673,626 and the number of participants had increased to 50.3 million.8 Some
analysts attribute at least part of the decline in the number of defined benefit plans
to the Employee Retirement Income Security Act of 1974 (ERISA). Likewise, the
growth in the number of defined contribution plans has been attributed in part to
changes in tax law made by the Revenue Act of 1978.
ERISA and defined benefit pensions. ERISA was passed by Congress to
protect the interests of participants and beneficiaries of pension plans in the private
sector. The law was a response to instances in which pension funds had been
mishandled or plans had become insolvent. It also addressed certain obstacles to
receipt of pension benefits such as onerous age or length-of-service requirements.
ERISA established statutory requirements on private pension plans that made it more
likely that pension participants would receive the pension benefits that they had
earned. However, it has been observed that another effect of ERISA was to make it
“much more costly and troublesome for employers, especially small employers” to
offer a traditional defined benefit pension plan.9
7 Defined benefit plans are insured up to certain limits by the Pension Benefit Guaranty
Corporation (PBGC). Defined contribution plans are not insured by the PBGC.
8 Some workers participate in both types of plan. Figures are from the annual Private
Pension Plan Bulletin, published by the U.S. Department of Labor.
9 John G. Kilgour, “Restructuring Retirement Income Plans,” Compensation and Benefits
Review, vol. 32 no. 6, (November/December 2000).

---

CRS-7
Although the increased regulation of pension plans required by ERISA may
have contributed to the decline in the number of defined benefit pensions, the effect
was not immediate. Between 1975 and 1983, the number of defined benefit plans
increased from 103,346 to 172,642. Only then did the number of DB plans begin to
decline. The decline in the number of DB plans began at nearly the same time the
number of defined contribution plans - particularly the “401(k) plan” - began to rise
rapidly. (See Table 3). Section 401(k) was added to the Internal Revenue Code by
the Revenue Act of 1978, but it was not until 1981 - after regulations had been
published by the IRS - that the first 401(k) plan was established.
Defined contribution plans and the Revenue Act of 1978. Defined
contribution plans existed before the Revenue Act of 1978, but it was only after the
advent of the 401(k) that DC plans overtook traditional defined benefit pensions in
number of plans, participants, and total assets. Earlier defined contribution plans had
been funded exclusively by employer contributions. In a 401(k) plan, however, both
the employer and the employee can make contributions. The ability of both the
employer and the employee to contribute on a pretax basis and the voluntary nature
of employee participation are defining characteristics of the 401(k) plan. These
characteristics “shift a substantial portion of the burden for providing for retirement
to the employee. The employee decides whether or not to participate, how much to
contribute, and how to invest the assets.” (Munnell, Sundén, and Taylor, 2000).
Table 3. Number of 401(k)-type Plans, Participants, and Assets,
1984-1998

Participants
Assets
Year
Plans
(thousands)
(millions)
1984
17,303
7,540
$91,754
1985
29,869
10,339
143,939
1986
37,420
11,559
182,784
1987
45,054
13,131
215,477
1988
68,121
15,203
276,995
1989
83,301
17,337
357,015
1990
97,614
19,548
384,854
1991
111,394
19,126
440,256
1992
139,704
22,404
552,959
1993
154,527
23,138
616,316
1994
174,945
25,206
674,681
1995
200,813
28,061
863,918
1996
230,808
30,843
1,061,493
1997
265,251
33,865
1,264,168
1998
300,593
37,114
1,540,975
Source: U.S. Department of Labor, Pension & W elfare Benefits Administration.

---

CRS-8
Worker participation in voluntary plans. A number of factors influence
a worker’s decision to participate in a voluntary retirement plan, how much to
contribute, and how to invest the contributions. A study that analyzed data from the
pension supplement to the Census Bureau’s April 1993 Current Population Survey
found that participation is higher when the employer offers matching contributions,
and that participation increases with an employee’s age, income, and length of
service with the firm.10
A more recent study used the Federal Reserve Board’s 1998 Survey of
Consumer Finances to study the factors that influence an employee’s decision to
participate in a 401(k) and how much to contribute to the plan. The authors found
that in addition to being positively associated with a worker’s age, income, education,
and length of service, participation was greater among employees whose “planning
horizon” was four years or more. They interpreted this result as indicating that
educating employees on the importance of planning for retirement could raise savings
rates. Their results showed that the plan characteristics with the greatest effect on
employee participation were the presence of an employer match on employee
contributions and the ability of participants to borrow from their account balances
before retirement. Their research indicated that the amounts employees contributed
were positively related to employee income and wealth, long planning horizons,
employer matching contributions, and the ability to borrow from the plan.11
Automatic enrollment. In 1998 and 2000, the IRS issued regulations that
permit employers to enroll employees automatically in a 401(k), 403(b), or 457
retirement plan. Benefits consultants estimate that since the IRS issued its first
regulation on the practice, some 7% to 10% of 401(k) plan sponsors have instituted
automatic enrollment in their plans. (Jacobius, 2000) Employees who are enrolled
automatically must be given an option to drop out of the plan; however, a study by
Hewitt Associates found that only 4% of employees who were automatically enrolled
in a 401(k) plan opted not to participate. According to a survey of 10 companies
conducted by the Profit Sharing/401(k) Council of America, average participation
rates rose from 76% to 93% after automatic enrollment was adopted.
Worker Ownership of Retirement Accounts in 2000
Both Social Security and traditional defined benefit pensions that guarantee
payment of a lifelong annuity are important elements in providing a secure income
during retirement. However, with the growth of 401(k) plans in which the worker
must decide how much to contribute and where to invest the funds, much of the
responsibility for preparing for retirement has been shifted to workers themselves.
Thus, the extent to which workers are preparing for retirement depends in part on the
value of the assets they are accumulating in these plans and in individual retirement
accounts.
10 William Even and David MacPherson, Factors Influencing Participation and
Contribution Levels in 401(k) Plans, report to the U.S. Department of Labor, 1997.
11 Alicia Munnell, Annika Sundén, and Catherine Taylor, What Determines 401(k)
Participation and Contributions?, Center for Retirement Research, Boston College, 2000.

---

CRS-9
Workers whose employers offer savings or “thrift” plans such as those
authorized under sections 401(k), 403(b), and 457 of the Internal Revenue Code can
accumulate assets on a tax-deferred basis while they are working. In addition, most
people with earned income can contribute to an Individual Retirement Account
(IRA). In both cases, taxes are paid when the funds are withdrawn, and a penalty
may apply if the withdrawals occur before retirement.12 For many people, the
marginal income tax rate that they will face in retirement will be lower than the rate
that was applied to their earnings prior to retirement.
Estimating workers’ retirement account balances. The Bureau of the
Census collects data on household income and assets through its Survey of Income
and Program Participation (SIPP). The data collected in this survey can be used to
estimate the number of workers who participate in thrift plans and IRAs, the
proportion of these individuals who invest some of their retirement savings in stocks
and stock mutual funds, the total value of their retirement accounts, and the total
value of the assets owned by all members of their households. The most recent data
from the SIPP on individuals’ retirement assets were collected in 2000. Data on
household assets also are collected by the Federal Reserve Board through its Survey
of Consumer Finances (SCF). However, the SIPP data can be analyzed at a finer
level of detail than the SCF data because the SIPP is conducted among a much larger
sample of households. For the 1998 Survey of Consumer Finances, members of
4,309 households were interviewed. (Kennickell, Starr-McLuer, and Surette, 2000).
In contrast, the first wave of the 1996 panel of the SIPP included more than 36,000
households. The twelfth wave of the 1996 panel of the SIPP - conducted in late 1999
and early 2000 - included more than 27,000 households.
The Survey of Income and Program Participation. The data analyzed
for this report were collected by the Bureau of the Census in early 2000 as part of the
Survey of Income and Program Participation (SIPP). The individuals asked to
participate in the survey are a nationally representative sample of the civilian,
noninstitutionalized population of the United States. The SIPP is a longitudinal
survey, meaning that it measures changes in the economic and demographic
characteristics of individuals and households over time. People who participate in
the survey are interviewed once every 4 months over a 2½-year or 4-year period. At
each interview, respondents are asked to provide information covering the 4 months
since the previous interview. This 4-month span is called the “reference period” for
the interview. While it was designed as a longitudinal survey, the SIPP also can be
used to study characteristics of the population at a point in time (cross-sectional
analysis) by looking at the data from a particular 4-month reference period or a
specific month within the reference period.13
The SIPP is an important source of information about the demographic and
economic status of United States residents. By collecting data on labor force
12 In a traditional IRA, pre-tax contributions can be made only if the worker is not covered
by an employer-sponsored retirement plan or has income below amounts specified in law.
All investment earnings accrue on a tax-deferred basis. Roth IRAs accept only after-tax
contributions; however, withdrawals from a Roth IRA during retirement are tax-free.
13 More information on the SIPP is available at http://www.sipp.census.gov/sipp.

---

CRS-10
participation, sources of income, and participation in federal and state programs, the
SIPP provides a wealth of data about government transfer and service programs and
their effects on the economic situations of families and individuals. For example, the
SIPP can be used to examine receipt of income from means-tested transfers (such
as Temporary Aid to Needy Families and Food Stamps) and transfers that are not
means-tested (such as Social Security). In addition to asking about amounts and
sources of income, the SIPP collects information on asset ownership to provide a
more complete picture of the total economic resources available to families and
individuals. The SIPP data on household wealth and asset ownership presented in
this report are the most recent available from the Bureau of the Census.14
Retirement Wealth of Workers 25 to 64 Years Old
The following tables show the number of workers who owned one or more
retirement savings plans in 2000, as well as the average balances held in those
accounts at the end of the reference month for the survey. Following these, there are
tables that show the average household wealth and average household debt of all
workers who were 25 to 64 years old in 2000.
Defining the terms of the analysis. The tables present information on the
retirement savings and household wealth of workers 25 to 64 years old. For purposes
of this report, this population includes anyone who worked for pay at any time during
the four-month reference period of the survey. We restricted the analysis to workers
between the ages of 25 and 64 because younger workers have low rates of
participation in retirement plans and are generally more concerned with establishing
themselves in their careers than in accumulating assets for retirement. Workers age
65 or older are more likely than those under 65 to have retired from their career jobs
and to be working part-time or part-year.
For purposes of accumulating and consuming assets, the household may be a
more relevant unit of analysis than the individual. In a household comprising a single
individual, that person has only his or her own assets on which to draw.15 In a
household comprising more than one individual, the worker and other household
members may be able to draw upon each other’s assets during retirement. Therefore,
the tables show both the average value of retirement accounts owned by individual
workers 25 to 64 and the average value of all retirement accounts owned by members
of these workers’ households, regardless of age.
14 Another recent study (Anderson, 1999) examined the wealth of families in 1995, based
on data collected as part of the 1993 panel of the SIPP. The results presented in this report
are not directly comparable with those published by Anderson because that study followed
the Census Bureau’s convention of excluding the value of employer-sponsored thrift plans
from individual and household wealth. This CRS Report, however, follows the Federal
Reserve Board’s convention of including the value of employer-sponsored thrift plans in
individual and household wealth.
15 Due to limitations of the data, we cannot estimate the extent to which individuals might
be able to draw upon the assets of relatives living in other households.

---

CRS-11
The SIPP questionnaire asked respondents to report the value of account
balances in Individual Retirement Accounts (IRAs), Keogh plans for the self-
employed, and 401(k) plans and other employer-sponsored thrift plans. The SIPP
questionnaire, however, does not define “401(k) plans and other employer-sponsored
thrift plans.” According to the Department of Labor, the retirement plans authorized
under sections 401(k), 403(b), and 457 of the Internal Revenue Code all are savings
and thrift plans, which it defines as those in which “employees may contribute a
predetermined portion of earnings (usually pretax) to an individual account, all or
part of which the employer matches.”16
The tables do not include the portion of retirement wealth that is represented by
the present value of benefits accrued under Social Security and employer-sponsored
defined-benefit pension plans. These are important sources of retirement wealth, but
the data collected in the assets and liabilities module of the SIPP do not include the
information necessary to estimate the value of these assets. If a worker’s earnings
history is known, a rough estimate of expected Social Security benefits can be
derived, based on estimates of future earnings and the expected date of retirement.
The Social Security Administration now sends such an estimate to each covered
worker once a year. The present value of the projected stream of Social Security
benefits over time can be estimated by applying an appropriate discount rate.17
Estimating the present value of benefits earned under defined benefit pensions would
be more difficult because the specific provisions of each plan must be known in order
to estimate the value of the benefit that has been earned.
Summary of thrift plan ownership. During an average month in 2000, an
estimated 113 million people between the ages of 25 and 64 worked for pay,
including workers employed full-time and those who worked part-time, workers in
the private sector and those in the public sector, workers who were self-employed and
those who worked for others. (See Table 4). An estimated 47.1 million of these
workers (41.8%) owned one or more retirement accounts, including IRAs, Keogh
accounts, 401(k) accounts and other employer-sponsored savings or thrift plans. An
estimated 34.8 million workers (30.9%) owned a 401(k)-type plan, 21.4 million
(19.0%) owned an IRA or Keogh plan (mostly IRAs), and 9.1 million (8.1%) owned
both an IRA/Keogh and a 401(k) plan. An estimated 65.6 million workers between
the ages of 25 and 64 (58.2%) did not own a retirement savings account of any kind.18

16 U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Medium and
Large Private Establishments, 1997, Bulletin 2517, September 1999.
17 One might also wish to make some assumptions about the effect on benefits of reforms
needed to preserve the solvency of the Social Security program.
18 These figures also indicate that 25.7 million workers had only a 401(k)-type plan:
(34.8-9.1=25.7). An estimated 12.3 million workers had only an IRA: (21.4-9.1=12.3).

---

CRS-12
Table 4. Worker Ow nership of Retirement Accounts, 1999 and 2000
(Number of workers, in thousands)
1999
2000
Workers Percent Workers Percent
All workers, 25 to 64 years old
111,389
100%
112,663
100%
Owned either an IRA/Keogh or a 401(k)-type thrift plan
44,522
40.0%
47,072
41.8%
Owned a 401(k)-type plan thrift plan
32,472
29.2%
34,771
30.9%
Owned an IRA or Keogh plan
20,478
18.4%
21,422
19.0%
Owned both an IRA/Keogh and a thrift plan
8,428
7.6%
9,121
8.1%
Owned neither an IRA/Keogh nor a thrift plan
66,867
60.0%
65,591
58.2%
Full-time workers, 25 to 64 years old
80,320
100%
82,260
100%
Owned a 401(k)-type thrift plan
25,174
31.3%
26,938
32.8%
Owned an IRA or Keogh plan
14,074
17.5%
14,755
17.9%
Owned neither an IRA/Keogh nor a thrift plan
47,327
58.9%
47,208
57.4%
Part-time workers, 25 to 64 years old
31,069
100%
30,403
100%
Owned a 401(k)-type thrift plan
7,298
23.5%
7,833
25.8%
Owned an IRA or Keogh plan
6,404
20.6%
6,667
21.9%
Owned neither an IRA/Keogh nor a thrift plan
19,539
62.9%
18,382
60.5%
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.
Retirement account balances by type of account.
The data displayed
in Table 5 summarize the average values of retirement accounts owned by workers
and their households in 2000. Among the 47.1 million workers who owned a
retirement savings account of any kind in 2000, the mean value of all such accounts
owned by the workers themselves was $45,960. For workers with more than one
account, this is the mean value of all accounts summed together. The median value
of all the workers’ accounts was $18,000. (Half of the workers owned accounts
totaling more than $18,000 and half owned accounts with a total value of less than
$18,000.) When all of the retirement accounts owned by the workers and other
members of their households were combined, the mean value was $71,040 and the
median value was $31,000.
Both the mean and median values of 401(k) accounts owned by workers with
such accounts in 2000 were greater than the mean and median value of IRAs owned
by workers with that kind of account. The 401(k) accounts owned by workers had
a mean value of $40,050 and a median value of $16,000, while the IRAs owned by
workers had a mean value of $35,980 and had a median value of $13,000. By most
other measures, however, workers who owned IRAs had higher total retirement
account balances than those who owned 401(k) accounts. This is attributable in part
to the fact that workers who owned an IRA were more likely to have a 401(k) than
workers who had a 401(k) were to own an IRA. In 2000, an estimated 9.1 million

---

CRS-13
workers owned both an IRA or Keogh and a 401(k)-type plan. Thus, 42.2% of all
workers who owned an IRA or Keogh also owned a 401(k), while just 26.2% of
workers who owned a 401(k)-type account also owned an IRA or Keogh plan.19
Workers who owned an IRA or Keogh lived in households with substantially
greater retirement account balances than workers who owned a 401(k), again in part
because those who owned an IRA or Keogh were more likely to be owners of
multiple accounts. The mean value of all retirement accounts in the households of
workers who owned a 401(k)-type plan in 2000 was $73,040, and the median value
was $32,450. The mean value of all retirement accounts in the households of
workers who owned an IRA or Keogh plan in 2000 was $97,630, and the median
value was $48,000.
Means and Medians
The average values of retirement accounts, household wealth, and household
debt are shown in terms of both the mean and the median values. The mean is a
simple arithmetic average.20 It is calculated by adding up the reported values of all
accounts and then dividing this total by the number of account-holders. As a measure
of central tendency – what an “average” represents – the mean is flawed because it
can be biased by a relatively small number of unusually high or low values. The
median is another kind of average that is more representative of the population
because it is not biased by unusually high or low values. The median is calculated
by ordering all of the observed values from highest to lowest and finding the value
that lies exactly at the midpoint of the distribution. One half of all observed values
are greater than the median and the other half are less than the median.
19 Derived as follows: 9.121/21.422=.426 and 9.121/34.771=.262. See Table 4 for data.
20 The Census Bureau has assigned a survey weight to each respondent to the SIPP. The sum
of the weights is equal to the estimated population of civilian, noninstitutional residents of
the U.S. The means shown in each table are the weighted means for each observation.

---

CRS-14
Table 5. Retirement Account Balances of Workers 25 to 64 Years old,
1999 and 2000
(Numbers of workers in thousands)
1999
2000
Account
Account
Workers
value
Workers
value
Owned either an IRA/Keogh or a 401(k)-type plan*
44,522
47,072
Value of worker’s retirement accounts
Mean value
$41,150
$45,960
Median value
$16,000
$18,000
Value of all retirement accounts in household
Mean value
$62,730
$71,040
Median value
$27,000
$31,000
Owned a 401(k) or other type of thrift plan*
32,472
34,771
Value of worker’s 401(k)-type accounts
Mean value
$35,620
$40,050
Median value
$15,000
$16,000
Value of worker’s retirement accounts, all types
Mean value
$44,430
$50,100
Median value
$18,800
$20,000
Value of all 401(k)-type accounts in household
Mean value
$48,320
$54,780
Median value
$21,000
$24,000
Value of all retirement accounts in household
Mean value
$63,660
$73,040
Median value
$27,400
$32,450
Owned an IRA or Keogh plan*
20,478
21,422
Value of worker’s IRAs and Keogh accounts
Mean value
$33,000
$35,980
Median value
$12,000
$13,000
Value of worker’s retirement accounts, all types
Mean value
$54,930
$60,990
Median value
$23,000
$25,000
Value of all IRA/Keogh accounts in household
Mean value
$49,370
$54,890
Median value
$20,700
$23,000
Value of all retirement accounts in household
Mean value
$86,200
$97,630
Median value
$41,630
$48,000
* An estimated 9.1 million workers 25 to 64 years old owned both a 401(k)-type thrift plan and an IRA or
Keogh plan in 2000 . Approximately 65.6 million workers aged 25 to 64 owned neither type of plan.
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-15
Retirement account balances by age of worker. A worker’s age is an
important consideration when evaluating the adequacy of his or her retirement
wealth. The more time that a worker has until reaching retirement age, the greater
will be the opportunity for additional contributions and investment earnings to build
up the account balances. Table 6 presents worker’s average retirement account
balances in 2000, with the averages calculated for each of four age categories.
An estimated 10.1 million workers 25 to 34 years old owned a retirement
account of some kind in 2000. This was 32% of all workers of that age. Sixty-eight
percent of workers in this age group owned no retirement accounts. The mean value
of all retirement accounts owned by these workers was $14,780 and the median value
was $6,000. The mean value of all retirement accounts owned by all members of
these workers’ households was $27,600, and the median value was $10,200.
An estimated 15.8 million workers between the ages of 35 and 44 (42% of all
workers in this age category) owned at least one retirement account in 2000. Fifty-
eight percent owned no retirement accounts. The mean and median values of these
workers’ retirement accounts were roughly three times as large as the corresponding
values for workers aged 25 to 34. Workers between the ages of 35 and 44 had a
mean balance of $41,050 in their accounts and a median balance of $19,500. The
mean value of all retirement accounts owned by members of these workers’
households was $63,030, and the median value was $31,000.
Among workers who were 45 to 54 years old in 2000, approximately 14.2
million, or 48%, had at least one retirement account. Fifty-two percent owned no
retirement accounts. The mean value of these workers’ accounts was $60,740, and
the median value was $28,000. The mean value of all retirement accounts owned by
all members of their households was $92,990, and the median value of all retirement
accounts in these households was $48,000.
Workers 55 to 64 years old were more likely to own a retirement account than
any other group. An estimated 7.0 million workers between the ages of 55 and 64
(50% of all workers in this age category) owned at least one retirement account in
2000. Still, half of workers in this age category owned no retirement accounts in
2000. The mean value of these workers’ accounts was $71,910, and the median
value was $33,000. The mean value of all retirement accounts owned by these
workers and other members of their households was $107,040, and the median value
was $56,000. When those who owned no retirement accounts are included, 75% of
workers 55 to 64 years old lived in households with retirement savings of between
zero and $56,000 in 2000.
Even among workers 55 to 64 years old, average retirement account balances
in 2000 were not very large. The mean value of the accounts held by individual
workers was $71,910. For a 65-year-old retiring in December 2002, this amount
would be sufficient to purchase a level, single-life annuity that would pay $515 per
month, based on the federal Thrift Savings Plan’s current annuity interest rate of
4.0%. The mean value of these workers’ total household retirement accounts -
$107,000 - would purchase a level joint-and-survivor annuity worth $634 per month,
based on 4.0% interest and retirement at age 65. The median value - $56,000 - would
be sufficient to purchase a joint-and-survivor annuity of just $332 per month.

---

CRS-16
Table 6. Retirem ent Account Balances of Workers in 2000,
by Age of Worker
Workers 25 to 64 years old who owned an IRA, Keogh Plan or a 401(k)-type plan*
(Num bers of wo rkers in thousand s)
Account Account
Workers
owners
value
Workers 25 to 34 years old
31,433
10,067
Value of worker’s retirement accounts
Mean
$14,780
Median
$6,000
Value of all retirement accounts in household
Mean
$27,600
Median
$10,200
Workers 35 to 44 years old
37,365
15,790
Value of worker’s retirement accounts
Mean
$41,050
Median
$19,500
Value of all retirement accounts in household
Mean
$63,030
Median
$31,000
Workers 45 to 54 years old
29,811
14,246
Value of worker’s retirement accounts
Mean
$60,740
Median
$28,000
Value of all retirement accounts in household
Mean
$92,990
Median
$48,000
Workers 55 to 64 years old
14,054
6,969
Value of worker’s retirement accounts
Mean
$71,910
Median
$33,000
Value of all retirement accounts in household
Mean
$107,040
Median
$56,000
Total: workers 25 to 64 years old
112,663
47,072
Value of worker’s retirement accounts
Mean
$45,960
Median
$18,000
Value of all retirement accounts in household
Mean
$71,040
Median
$31,000
* An estimated 9.1 million workers 25 to 64 years old owned bo th a 401(k)-type thrift plan and
an IRA or Keo gh plan in 2000. Approximately 65.6 million owned neither type of plan.
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-17
Average household wealth in 2000. Most workers have forms of wealth
other than retirement accounts on which they will be able to draw during retirement.
More than 95% of workers in the United States are covered by Social Security, and
roughly 30% of all workers participated in a defined-benefit pension plan in 2000.21
In addition, many workers have assets that might ultimately be used to pay expenses
during retirement. For example, the most valuable asset owned by most people is
their home, and some may find when they are older that they prefer to live in a
smaller house or apartment, or they may choose to move to an area where property
taxes and other living expenses are lower than where they lived during their working
years. In addition to equity in their homes, many individuals have financial assets,
equity in businesses, real estate, or other valuables that can either provide a stream
of income through interest, dividends, or rents, or that can be fully or partially
liquidated to finance their consumption needs during retirement.
On the public use file of the SIPP, total household wealth is defined as the sum
value for all adults in the household of home equity, net equity in vehicles, business
equity, interest-earning assets held in banking institutions, interest earning assets held
in other institutions, equity in stocks and mutual fund shares, equity in real estate
other than the home, equity in other assets, and equity in IRA and Keogh accounts.
To this total, CRS has added the sum value for all adults in the household of all
401(k) plans and other thrift plans. This is consistent with the method used by the
Federal Reserve Board, which includes the value of such accounts in the estimates
of household wealth that it derives from the Survey of Consumer Finances.
Household debt is the sum of debts owed by all adults in the household, including
home mortgages, home equity loans, other real estate debts, automobile loans,
installment loans, credit card debt, and other household debt.
Mean and median values of the household wealth and household debt of
workers, classified by age and ownership of retirement accounts, are displayed in
Table 7.22 Note that the mean and median values of household wealth rise through
the highest age category, comprising workers who were 55 to 64 years old in 2000.
In each age category, the mean and median values of household wealth are higher for
owners of retirement accounts, although it is important to remember that one cannot
necessarily assume that these individuals are wealthier because they own retirement
accounts. Ownership of any particular kind of asset also can be interpreted as a
consequence of wealth. Nevertheless, if workers without retirement accounts could
be persuaded to establish them, and if their contributions represented net new saving,
they would approach retirement with greater household wealth and greater resources
to finance consumption during retirement.
21 The Bureau of Labor Statistics reports that in 2000 only one-fifth of workers in the private
sector had a defined benefit plan, compared to 90% of workers in the public sector.
22 Note that the unit of analysis is the worker and not the household. Each worker’s
household wealth is equal to the combined wealth of all members of that worker’s
household. The mean household wealth of workers is the sum of the household wealth of
all workers divided by the number of workers.

---

CRS-18
Table 7. Household Wealth and Household Debt of Workers in
2000, by Age of Worker
(Numbers of workers in thousands)
Workers who do not
Workers who own
own an IRA, Keogh
an IRA/Keogh or
or 401(k)-type plan
401(k)-type plan
Workers Amount Workers Amount
Workers 25 to 34 years old
21,366
10,067
Household wealth
Mean
$65,480
$117,590
Median
$16,500
$52,330
Household debt
Mean
$52,390
$85,260
Median
$22,000
$68,620
Workers 35 to 44 years old
21,574
15,790
Household wealth
Mean
$96,610
$228,260
Median
$36,320
$123,225
Household debt
Mean
$62,330
$99,000
Median
$34,000
$84,000
Workers 45 to 54 years old
15,565
14,246
Household wealth
Mean
$124,400
$327,160
Median
$61,050
$201,690
Household debt
Mean
$57,780
$90,020
Median
$28,000
$63,200
Workers 55 to 64 years old
7,084
6,969
Household wealth
Mean
$160,930
$458,140
Median
$85,900
$273,760
Household debt
Mean
$50,240
$68,170
Median
$19,900
$36,400
Total: workers 25 to 64 years old
65,590
47,072
Household wealth
Mean
$100,010
$268,560
Median
$36,170
$142,800
Household debt
Mean
$56,710
$88,780
Median
$26,200
$67,500
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-19
Policy Implications
Are Americans saving adequately for retirement? The answer to that question
depends in part on how broadly one defines the term “saving.” Certainly, the average
retirement account balances reported by respondents to the survey analyzed in this
report would not by themselves provide an income in retirement that most people in
the United States would find to be adequate. The median retirement account balance
in 2000 among workers 55 to 64 years old who owned one or more retirement
accounts was just $33,000. This amount would provide a monthly annuity of $236
per month to a person retiring at age 65. Moreover, as the data in Table 6 show, only
half of all workers between the ages of 55 and 64 owned any retirement accounts in
2000.
Although most workers in the United States - about 96% - are covered by Social
Security, only about 30% participate in defined-benefit pension plans where they
work. For workers who do not have coverage through a defined-benefit pension,
personal saving is an essential element of preparing for retirement. Whether workers
save by putting money aside in an account that is earmarked specifically for
retirement or by accumulating other assets on which they can draw after they have
retired is not necessarily important. The act of saving is of greater consequence to
retirement security than the manner in which it is accomplished. Nevertheless, the
fact that 58% of workers between the ages of 25 and 64 - almost 66 million
individuals - reported that they had no retirement savings accounts in 2000 indicates
that many people may not be using the most tax-efficient means of setting aside funds
for retirement.
On the other hand, the rapid growth of IRAs and 401(k)-type plans over a
relatively short period of time indicates that a substantial proportion of workers are
responding to the tax incentives that Congress has provided for retirement savings
accounts. In 2000, more than 47 million workers between the ages of 25 and 64 had
at least on IRA or 401(k)-type of retirement account. If a survey of retirement
account participation had been conducted in, say, 1975, it would have found that
almost no one owned, or had even heard of such things. Twenty-five years ago,
Keogh plans and section 403(b) annuities were practically the only savings plans in
existence that were designed specifically as retirement savings vehicles. Considering
that IRAs were first authorized by Congress in 1974, and that the first 401(k) plan
was established just 21 years ago in 1981, some might find it quite astonishing that
by 2000 more than 47 million Americans owned one or more of these retirement
savings accounts.
While the rapid adoption of tax-favored retirement savings plans can be viewed
as a substantial public policy success, greater personal saving will be needed for the
current generation of workers to maintain their desired standard of living in
retirement. The uncertain future of Social Security and the declining prevalence of
traditional defined-benefit pensions that provide a guaranteed lifelong annuity have
put much of the responsibility for preparing for retirement on the shoulders of the
worker. The low rate of personal saving in the United States, and the lack of any
retirement savings accounts among a majority of American workers, indicate that
there is a need for greater awareness among the public about the importance of
setting aside funds to prepare for life after they have stopped working.

---

CRS-20
Appendix: Statistical Analysis of Account Balances
The data in Table 5 and Table 6 show the mean and median retirement account
balances that workers reported on the Survey of Income and Program Participation
in 2000. For a variety of reasons, actual account balances vary a great deal from one
worker to another. The variation in account balances from person to person can be
explained by a number of factors, some of which are particular to the worker, and
others of which are particular to the retirement plan in which he or she participates.
The data on retirement account ownership and account balances collected in the
SIPP do not include the characteristics of the employer-sponsored retirement plans
in which workers participated.23 However, the SIPP contains information on several
economic and demographic characteristics of workers that economic theory suggests
might have a statistically significant relationship to workers’ retirement account
balances. Both the direction and the magnitude of these statistical relationships can
be estimated through regression analysis, a statistical procedure that measures the
extent to which changes in one or more independent variables are associated with
changes in a dependent variable (also called the response variable).
Factors related to workers’ retirement account balances. CRS
modeled the sum of each worker’s retirement account balances in IRAs, Keoghs, and
401(k)-type plans as a linear regression with the independent variables representing
a set of economic and demographic characteristics of each worker. The results
indicate that the model explains about 35% of the variation in account balances, a
comparatively large coefficient of determination for a model that includes only
variables describing the characteristics of the worker and none describing the
retirement plans in which they participate.24
Income and retirement account balances. The mean monthly income
of the workers in the sample was $4,041, equivalent to about $48,500 on an annual
basis. Other things being equal, monthly income that was higher by $1,000 was
associated with worker retirement account balances that were higher by $3,610.
Demographics and retirement account balances. All of the individuals
analyzed for this study were between the ages of 25 and 64 during the 4-month
reference period of the survey. The mean age of the workers who owned retirement
accounts was 43.5 years, and the worker’s age was positively and significantly related
to the worker’s cumulative retirement account balances. Holding all other variables
constant, a one-year increase in worker age was associated with an increase in
retirement account balances of $858. A male worker had a retirement account
23 Detailed information about employer-sponsored retirement plans were collected in a later
topical module of the SIPP. These data were released to the public earlier this year.
24 The model is an ordinary least squares (OLS) regression in which the dependent variable
is the sum of an individual worker’s account balances in all retirement accounts that he or
she owns. The adjusted R2 of the model is .35. Complete results are shown in Table A1.
An alternative model included the square of income to account, in part, for the non-linear
relationship between income and wealth. The squared income term was negative and
significant, as theory would suggest. Otherwise, the results were substantially similar to
those presented here.

---

CRS-21
balance that was $10,448 higher than that of a female worker, all else being equal.
Relative to other races, those who identified themselves as being white had
retirement account balances that were higher by an average of $11,252.25 The
coefficient for marital status (modeled as 1 if the worker was married and 0 if the
worker was separated, divorced, widowed, or never married) was positive, but it was
not statistically significant. Having one or more children under age 18 in the family
was negatively related to retirement account balances, but was not statistically
significant. The coefficient indicating home ownership was positive, but it too was
statistically insignificant.
The worker’s level of education was modeled with a set of four categorical
variables that identified each worker as having (1) completed less than 12 years of
schooling, (2) graduated from high school, (3) attended college without earning a
B.A. or B.S. degree, or (4) graduated from college, including those with graduate
degrees. Relative to a worker with some college but no degree, having completed
less than 12 years of school was associated with a retirement account balance that
was lower by $10,900. Having completed high school but not attended college was
associated with a retirement account balance that was $3,335 lower than that of a
worker with some college education. Having earned a 4-year college degree was
associated with a retirement account balance that was higher by $14,460 than that of
a worker who had some college education, but did not earn a bachelor’s degree.
Employment and retirement account balances. All of the individuals
analyzed for this study were employed for at least one month during the 4-month
reference period of the survey. Other things being equal, working in the public sector
for an agency of the federal, state, or local government was associated with a
retirement account balance that was $9,263 lower than the balance of a worker
employed in the private sector. The variable indicating part-time employment was
positive, but the coefficient was not statistically significant.
Years of contributions, investment in stocks, and ownership of
IRAs. The mean length of time over which workers had been contributing to a
retirement account was 7.6 years. (For workers with more than one retirement
account this represents the longest period over which they had contributed to any of
them). Other things being equal, workers who had been contributing for longer than
the mean length of time had higher account balances. Each additional year since the
first contribution was associated with an increase in retirement account balances of
$4,650. Almost 84% of the workers in the sample had invested at least part of their
retirement account in common stocks or mutual funds that owned common stocks.
Other things held constant, these workers had account balances that were $10,700
higher than those who had no investments in equities. About 45% of the workers
in the sample owned an IRA or Keogh plan, either as their only retirement account
or in addition to an employer-sponsored plan such as a 401(k). Other things being
equal, workers who owned an IRA had retirement account balances that were $5,394
greater than workers whose only account was a 401(k) or other thrift plan.
25 Nonwhite workers are those whose race was defined as Black, Asian, or Native American.
Hispanic workers were in whichever category they chose to identify their race.

---

CRS-22
Table A1. Results of OLS Regression on Cumulative Value of
Retirement Accounts Owned by Individual Workers in 2000

Dependent (response) variable = Balances held in retirement accounts by
workers 25 to 64 years old in 2000
Mean (unweighted) = $46,212
Mean (weighted) = $45,959
Number of observations = 12,314
F Value = 438.2
R-squared = .3483
Prob>F = .0001
Adjusted R-squared = .3475
Parameter
Standard
Independent Variable
Mean
estimate
error
T statistic
Intercept
––
-75,216
3,527.35
-21.32 ***
Worker’s total monthly income
$4,041.44
3.61
0.13
27.36 ***
Age of worker
43.5
858.20
62.46
13.74 ***
Sex (1 = male)
.545
10,448
1,057.74
9.88 ***
Race (1= white)
.934
11,252
2,060.56
5.46 ***
Marital status (1 = married)
.717
2,240.18
1,259.75
1.78
Has children under age 18
.419
-1,535.03
1,159.29
-1.32
Owns home
.830
2,442.80
1,453.64
1.68
Less than 12 years of school
.026 -10,913
3,283.22
-3.32 ***
High school graduate
.228
-3,335.69
1,375.36
-2.43 **
College graduate
.418
14,460
1,217.75
12.04 ***
Works in public sector
.171
-9,262.79
1,366.51
-6.78 ***
Works part-time
.257
294.24
1,174.66
0.25
Greatest number of years
worker has contributed to IRA,
Keogh, or 401(k) plan
7.597
4,650.21
100.33
46.35 ***
Invests some of plan in stocks
or mutual funds
.835
10,701
1,362.61
7.85 ***
Worker owns an IRA or Keogh
.454
5,394.32
1,077.27
5.01 ***
*** = significant at .01 level
** = significant at .05 level
Notes: Regression results were estimated using unweighted values for each observation.
The R2 indicates that the model accounts for about 35% of the variation in account balances. The mean
is the average value of each independent variable for all observations in the sample. The parameter
is the estim ated c hange in the d epe ndent variab le asso ciated with a on e unit change in the independent
variable. The standard error is an estimate of the likely deviation of the true regression coefficient
from the estim ated v alue. T he t-statistic is the ra tio of the para meter estima te to the standard error.
It indica tes whe ther the e stimated coefficie nt is statistically significa nt.
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-23
Account balances for all members of the worker’s household. In a
second regression model, the dependent variable was defined as the sum of the
worker’s own retirement accounts and those owned by all other members of the
worker’s household. In general, the results of this regression were similar to those
of the first model, but there were a few striking differences. (Complete results are
displayed in Table A2). Total household monthly income showed the same positive
and statistically significant relationship to household retirement account balances
that the worker’s monthly income showed to his or her own account balances.
Likewise, the worker’s age, race, and level of education showed relationships to
household retirement account balances that were similar to the relationships that
these variables showed to the worker’s individual account balances.
There were four demographic traits of workers - sex, marital status, presence of
children, and home ownership - that each showed a different relationship to
household retirement account balances than it had shown to individual workers’
retirement account balances:
C
Working men had significantly higher individual retirement account
balances than working women, but the worker’s sex was not statistically
significant in the regression model of household retirement balances.
C
Marital status was not statistically significant in the regression on
individual retirement account balances; but a married worker had
household retirement account balances that were almost $14,500 greater
than those of an unmarried worker, other things being equal.
C
The presence of children under 18 in the family, which was not statistically
significant in the regression on individual retirement account balances, had
a negative and statistically significant relationship to total household
retirement account balances.
C
Home ownership, which was not statistically significant in the regression
on individual retirement account balances, had a positive and statistically
significant relationship to total household retirement account balances.
As in the model of individual retirement account balances, employment in the
public sector had a significantly negative relationship to household retirement
account balances. The coefficient for part-time employment, which was positive but
not significant in the regression on individual retirement account balances, was both
positive and statistically significant in the regression on household retirement account
balances. The number of years over which the worker had contributed to a retirement
plan, investment in stocks or mutual funds, and ownership of an IRA or Keogh
account all had significant, positive statistical relationships to household retirement
account balances, as they had in the regression on the individual worker’s retirement
account balances.

---

CRS-24
Table A2. Results of OLS Regression on Value of All Retirement
Accounts Owned by Persons in Workers’ Households in 2000
Dependent (response) variable = Balances held in retirement accounts by
all members of workers’ households in 2000
Mean (weighted) = $71,036
Mean (unweighted) = $71,405
Number of observations = 12,314
F Value = 412.3
R-squared = .3346
Prob>F = .0001
Adjusted R-squared = .3338
Parameter
Standard
Independent Variable
Mean
estimate
error
T statistic
Intercept
––
-107,246
5,120.44
-20.94 ***
Household’s total
monthly income
$6,765.11
4.65
0.15
32.03 ***
Age of worker
43.5
1,107.76
90.26
12.27 ***
Sex (1 = male)
.545
-2,266.01
1,506.82
-1.50
Race (1= white)
.934
17,085
2,995.58
5.70 ***
Marital status (1 = married)
.717
14,473
1,851.27
7.82 ***
Has children under age 18
.419
-6,265.18
1,683.07
-3.72 ***
Owns home
.830
5,946.95
2,116.69
2.81 **
Less than 12 years of school
.026 -12,812
4,768.91
-2.69 **
High school graduate
.228
-2,947.50
1,998.17
-1.48
College graduate
.418
17,996
1,761.66
10.22 ***
Works in public sector
.171 -10,124
1,983.18
-5.10 ***
Works part-time
.257
3,505.59
1,703.19
2.06 **
Greatest number of years
worker has contributed to IRA,
Keogh, or 401(k) plan
7.597
5,488.99
145.28
37.78 ***
Invests some of plan in stocks
or mutual funds
.835
15,053
1,978.86
7.61 ***
Household owns an
IRA or Keogh
.511
22,688
1,566.29
14.49 ***
*** = significant at .01 level
** = significant at .05 level
Notes: Regression results were estimated using unweighted values for each observation.
The R2 indicates that the model accounts for about 33% of the variation in account balances. The mean
is the average value of eac h inde pendent variab le for all observations in the sample. The parameter
is the estim ated c hange in the d epe ndent variab le associated with a one unit change in the independent
variable. The standard error is an estimate of the likely deviation of the true regression coefficient
from the estim ated v alue. T he t-statistic is the ratio of the parameter estimate to the standard error.
It indica tes whe ther ea ch estim ated c oefficien t is statistically significan t.
Source: CRS a nalysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-25
Table A3. Worker Ow nership of 401(k)-type Accounts in 2000
(Number of workers in thousands)
Do you have any 401 (k) or thrift plan accounts in your own name?
Yes
No
Total
Work er chara cteristics:
Number
Percent
Number
Percent
Number
Age
25 to 34
8,149
25.9%
23,284
74.1%
31,433
35 to 44
12,393
33.2%
24,972
66.8%
37,365
45 to 54
10,192
34.2%
19,619
65.8%
29,811
55 to 64
4,037
28.7%
10,016
71.3%
14,054
Race
W hite
30,660
32.4%
64,110
67.6%
94,770
Black
2,759
21.5%
10,079
78.5%
12,837
Asian or Native American
1,353
26.8%
3,703
73.2%
5,056
Sex
M ale
19,852
33.1%
40,087
66.9%
59,939
Fem ale
14,919
28.3%
37,804
71.7%
52,723
Education
Did not graduate High School
1,521
11.5%
11,682
88.5%
13,203
High Scho ol grad uate
7,933
24.2%
24,906
75.8%
32,839
Some college
11,307
33.0%
22,951
67.0%
34,258
Co llege gra duate
14,011
43.3%
18,353
56.7%
32,364
M arital status
Married
24,402
32.6%
50,547
67.4%
74,948
Not married
10,369
27.5%
27,345
72.5%
37,714
Annual household income
Under $20,000
1,284
11.2%
10,225
88.8%
11,509
$20,000 to $39,999
5,483
20.9%
20,702
79.1%
26,185
$40,000 to $59,999
8,190
30.8%
18,391
69.2%
26,581
$60,000 or more
19,814
41.0%
28,573
59.0%
48,388
Own or rent home
Own
28,128
34.4%
53,589
65.6%
81,713
Rent
6,648
21.5%
24,303
78.5%
30,950
Urban or rural location
Urban
29,690
31.9%
63,302
68.1%
92,992
Rural
5,081
25.8%
14,590
74.2%
19,671
Full time or part time worker
Full time (35+ ho urs per week)
26,938
32.8%
55,321
67.2%
82,260
Part time
7,833
25.8%
22,570
74.2%
30,403
Establishment size and sector
Private: temp/contingent worker
1,311
10.9%
10,731
89.1%
12,042
Private: under 25 employees
5,572
19.1%
23,545
80.9%
29,117
Private: 25 to 99 employees
6,365
33.0%
12,899
67.0%
19,263
Private: 100 or more employees
15,562
46.1%
18,208
53.9%
33,770
Public Sector
5,962
32.3%
12,508
67.7%
18,471
Have an IRA or Keogh plan?
Yes
9,121
42.6%
12,301
57.4%
21,422
No
25,651
28.1%
65,590
71.9%
91,241
Total
34,772
30.9%
77,891
69.1%
112,663
Note:
All workers, ages 25 to 64 in 2000.
Source:
CRS analysis of the Census B ureau’s Survey of Income and Program Participation.

---

CRS-26
Table A4. Worker Ow nership of Individual Retirement Accounts in 2000
(Number of workers in thousands)
Do you have an individual retirement account (IRA) or a Keogh plan?
Yes
No
Total
Work er chara cteristics:
Number
Percent
Number
Percent
Number
Age
25 to 34
3,064
9.8%
28,369
90.2%
31,433
35 to 44
6,238
16.7%
31,126
83.3%
37,365
45 to 54
7,515
25.2%
22,296
74.8%
29,811
55 to 64
4,605
32.8%
9,449
67.2%
14,054
Race
W hite
19,843
20.9%
74,927
79.1%
94,770
Black
771
6.0%
12,066
94.0%
12,837
Asian or Native American
808
16.0%
4,247
84.0%
5,056
Sex
M ale
11,741
19.6%
48,198
80.4%
59,939
Fem ale
9,681
18.4%
43,043
81.6%
52,723
Education
Did not graduate High School
530
4.0%
12,673
96.0%
13,203
High Scho ol grad uate
3,817
11.6%
29,022
88.4%
32,839
Some college
6,015
17.6%
28,243
82.4%
34,258
Co llege gra duate
11,060
34.2%
21,303
65.8%
32,363
M arital status
Married
16,010
21.4%
58,939
78.6%
74,948
Not married
5,412
14.4%
32,302
85.6%
37,714
Annual household income
Under $20,000
1,101
9.6%
10,408
90.4%
11,509
$20,000 to $39,999
2,953
11.3%
23,233
88.7%
26,186
$40,000 to $59,999
4,345
16.4%
22,236
83.6%
26,581
$60,000 or more
13,024
26.9%
35,364
73.1%
48,388
Own or rent home
Own
18,764
23.0%
62,948
77.0%
81,713
Rent
2,658
8.6%
28,293
91.4%
30,950
Urban or rural location
Urban
18,072
19.4%
74,920
80.6%
92,992
Rural
3,350
17.0%
16,321
83.0%
19,671
Full time or part time worker
Full time (35+ ho urs per week)
14,755
17.9%
67,505
82.1%
82,260
Part time
6,667
21.9%
23,736
78.1%
30,403
Establishment size and sector
Private: temp/contingent worker
3,502
29.1%
8,540
70.1%
12,042
Private: under 25 employees
5,381
18.5%
23,736
81.5%
29,117
Private: 25 to 99 employees
3,076
16.0%
16,188
84.0%
19,263
Private: 100 or more employees
5,860
17.4%
27,910
82.6%
33,770
Public Sector
3,604
19.5%
14,867
80.5%
18,471
Participate in a 401(k) plan?
Yes
9,121
26.2%
25,651
73.8%
34,772
No
12,301
15.8%
65,590
84.2%
77,891
Total
21,422
19.0%
91,241
81.0%
112,663
Note:
All workers, ages 25 to 64 in 2000.
Source:
CRS analysis of the Census B ureau’s Survey of Income and Program Participation.

---

References
Anderson, Joseph. M. The Wealth of U.S. Families: Analysis of Recent Census Data.
Report to the U.S. Department of Commerce, Bureau of the Census. No. 233.
November 10, 1999.
Even, William E. and David A. MacPherson. Factors Influencing Participation and
Contribution Levels in 401(k) Plans. Report submitted to the U.S. Department
of Labor, Pension and Welfare Benefits Administration. May 1997.
Jacobius, Arleen. “401(k) Saving Isn’t Automatic.” Pensions and Investments. Vol.
28, no. 16. August 7, 2000.
Kennickell, Arthur B., Martha Star-Mcluer and Brian J Surette. “Recent Changes in
U.S. Family Finances: Results from the 1998 Survey of Consumer Finances.”
The Federal Reserve Bulletin. Vol. 86, no. 1. January 2000.
Kilgour, John G. “Restructuring Retirement Income Plans.” Compensation and
Benefits Review. Vol. 32, no. 6. (November/December 2000).
Modigliani, F. “Life Cycle, Individual Thrift, and the Wealth of Nations.” American
Economic Review. Vol. 76, no. 3. (June 1986).
Munnell, Alicia H., Annika Sundén, and Catherine Taylor. What Determines 401(k)
Participation and Contributions? Working Paper 2000-12. Center for
Retirement Research. Boston College, Chestnut Hill, MA. December 2000.
United States Department of Labor, Pension and Welfare Benefits Administration.
Private Pension Plan Bulletin. Number 4, Winter 1995.
United States Department of Labor, Pension and Welfare Benefits Administration.
Private Pension Plan Bulletin. Number 11, Winter 2001-2002.

---