Hit on the Middle Class: Retirement Investments

This continues our series on changes in the middle class from 2007-2010

The June 2010 Federal Reserve Bulletin listed Changes in U.S. Family Finances from 2007-2010: Evidence from the Survey of Consumer Finances reported “The share of financial assets held in retirement accounts has nearly doubled since 1989, and as of 2010, it stood at 38.1% of families’ financial assets.”

Tax-Deferred Retirement Assets

“Ownership of tax-deferred retirement assets such as personally established individual retirement
accounts (IRAs) or job-based 401(k) accounts tends to increase with families’ income and net worth…Ownership is also more likely among families headed by a person less than 65 years of age than among the older groups.

• Retirement accounts have been increasingly prevalent in the past 30 years
• May not be available until relatively late in the careers of many older persons
• Beginning at age 59½ a person may withdraw, without penalty
• Some in the two oldest age groups may have already done so.
• Families used funds from retirement accounts to purchase an annuity at retirement”

Statistical Analysis

• From 2007 to 2010, the fraction of families with retirement accounts fell 2.6% to 50.4%
• The decrease offset most of the 3.1% point increase over the preceding three years
• Overall rate of retirement account ownership varied around 50% for the past decade.
• 85.4% of families with an account plan on a current job a decline of 1.8%  from 2007.
• 91.9% of families with such plans made contributions, an increase of 0.5% from 2007
• The median annual contribution by employers who contributed $2,300 in 2010
• Median contribution by families who contributed was $3,000
• Both amounts were little changed from 2007 levels
• Eligibility of heads of families to participate in any type of job-related pension fell from 55.9% in 2007 to 52.9% in 2010
• It had risen 1.1% over the preceding three years
• Participation by eligible workers is usually voluntary
• 84.3% of family heads who were eligible to participate did so, up from 83.8% in 2007
• The choice to participate appears to be related strongly to income

Wednesday we will review liabilities related to family finances from 2007-2010