Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Study sees U.S. retirement wealth up sharply by 2040

07.08.2007
The average value of Americans' 401(k) plans will be substantially higher in real terms by the year 2040 even if stock market returns fall short of their historical values, according to new research by a team of economists from MIT, Harvard and Dartmouth.

In a study published this week in the online early edition of the Proceedings of the National Academy of Sciences, James Poterba of MIT, Steven Venti of Dartmouth College and David Wise of Harvard University looked at how changes in types of pension plans and in demographic structure will affect the wealth of future retirees.

They found that if the average return on stocks for the next 35 years is three percentage points below its historical value, then the average value of 401(k) plan balances would increase from $29,700 in 2000 to $269,000 by 2040. If equity returns continue at their historical level, the average plan balance in 2040 would be even greater: $452,000 by 2040. All dollar values are measured in constant 2000 prices.

The findings challenge some bearish projections that retirement assets will drop in value in coming decades as baby-boomers cash out their holdings. The team accounted for the discrepancy by noting that their research takes into effect the continuation of pension plan shifts away from traditional defined benefit plans toward 401(k) plans--a trend that has been under way for some 30 years.

In short, because most current retirees who have assets in 401(k) plans were covered by these plans for only a fraction of their working careers, the balances at retirement for future retirees are likely to be substantially greater than those of current retirees.

This is true even if the trend toward a growing fraction of the workforce covered by 401(k) plans slows or stops, said Poterba, head of MIT's economics department and the Mitsui Professor of Economics.

"The key touchstone here is that if in fact people are in these 401(k) retirement plans for three or four decades, they will have a lot more chance to build up their assets than the current crop of retirees--many of whom have only been investing in 401(k) plans for part of their careers," Poterba said.

The paper uses data on historical participation rates in, and contribution rates to, 401(k) plans to project the future evolution of 401(k) balances for retirement-aged households.

Poterba noted several important caveats to the research, chief of which was the difficulty of trying to make accurate projections of what will happen more than three decades from now.

He also said certain demographic groups may cash out their 401(k) plans prior to retirement, meaning they will not benefit from the projected large increase in their nest eggs.

The work was funded by the Social Security Administration, the National Institute of Aging and the National Science Foundation.

Greg Frost | MIT News Office
Further information:
http://www.mit.edu

More articles from Social Sciences:

nachricht Fixating on faces
26.01.2017 | California Institute of Technology

nachricht Internet use in class tied to lower test scores
16.12.2016 | Michigan State University

All articles from Social Sciences >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

Im Focus: Quantum-physical Model System

Computer-assisted methods aid Heidelberg physicists in reproducing experiment with ultracold atoms

Two researchers at Heidelberg University have developed a model system that enables a better understanding of the processes in a quantum-physical experiment...

Im Focus: Glacier bacteria’s contribution to carbon cycling

Glaciers might seem rather inhospitable environments. However, they are home to a diverse and vibrant microbial community. It’s becoming increasingly clear that they play a bigger role in the carbon cycle than previously thought.

A new study, now published in the journal Nature Geoscience, shows how microbial communities in melting glaciers contribute to the Earth’s carbon cycle, a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

7th International Conference on Crystalline Silicon Photovoltaics in Freiburg on April 3-5, 2017

03.04.2017 | Event News

 
Latest News

New quantum liquid crystals may play role in future of computers

21.04.2017 | Physics and Astronomy

A promising target for kidney fibrosis

21.04.2017 | Health and Medicine

Light rays from a supernova bent by the curvature of space-time around a galaxy

21.04.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>