Savers rejoice! It seems the “retirement savings crisis” might be (somewhat) overblown.
In a startling reversal, Alicia Munnell of the Center for Retirement Research at Boston College now says the hit taken by American workers by switching from defined benefit to defined contribution plans isn’t what she once thought.
“Many commentators – ourselves included – assert that people are saving less for retirement as a result of the shift from defined benefit to defined contribution plans,” Munnell writes in a recent issue brief. “To support such an assertion, it would be nice to have counterfactual data showing what the world would look like today in terms of retirement saving if workers were still covered by defined benefit plans and compare that saving with actual contributions to defined contribution plans. But these data do not exist.”
However, she adds it is possible to get some idea about what is going on by looking at the National Income and Product Accounts (NIPAs).
“[I]nstead of reporting how much an employer contributes to a defined benefit plan, the NIPAs now report how much participants in a plan are accruing in benefits. This brief uses these new data to provide some insight on how pension saving has changed over time.”
The conclusion?
After various adjustments, Munnell writes, the percentage of salary going towards retirement saving has declined slightly.
“On the other hand, if returns on accumulations are included, the annual change in pension wealth appears to have remained relatively steady. In short, the NIPA data suggest that people are not accumulating less as the result of the shift from defined benefit to defined contribution plans. What has changed is not the amount of saving going on, but rather who is bearing the risk.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
