June 21, 2016
Steve Rattner had a column in the NYT warning that 401(k) accounts are proving to be an inadequate replacement for traditional defined benefit accounts. While the points he makes are exactly right (people lose too much money in fees, make bad investment choices, and don’t put enough money aside), one of the figures he cites may have misled readers about the state of workers’ finances.
Rattner cites a study by Alicia Munnell, the director of the Center for Retirement Research at Boston College, which finds that households have an average of $111,000 in retirement accounts. While the figure is accurate, it refers to an average which is skewed by the large holdings of the wealthy, and only includes people with retirement accounts.
A more meaningful figure can be found in the same report. It gives a summary of the assets of the middle decile of households with someone between the ages of 55 to 64. This shows holdings in 401(K)s and IRAs of just $40,100. In fairness, this group still has a substantial amount of assets in defined benefit accounts (the report puts the figure at $153,700), but if the question is the extent to which 401(k)s have been a successful replacement, it is appropriate to exclude these assets. (Yes, there will be some substitution, so people would have more money in 401(k)s if they did not have DB pensions.)
Anyhow, Rattner is right about the basic story, but the picture is somewhat worse than this $111,000 figure might lead people to believe.
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