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
Fixating on faces
26.01.2017 | California Institute of Technology
Internet use in class tied to lower test scores
16.12.2016 | Michigan State University
Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.
The results will be published on March 22 in the journal „Astronomy & Astrophysics“.
Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...
Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.
Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...
In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...
Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to simulate these confined natural conditions in artificial vesicles for the first time. As reported in the academic journal Small, the results are offering better insight into the development of nanoreactors and artificial organelles.
Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to...
20.03.2017 | Event News
14.03.2017 | Event News
07.03.2017 | Event News
22.03.2017 | Materials Sciences
22.03.2017 | Physics and Astronomy
22.03.2017 | Materials Sciences