Valuing Assets in Retirement Saving Accounts / James Poterba.

Format:

Book

Author/Creator:

Poterba, James.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10395.

NBER working paper series no. w10395

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Many studies compare household balances in tax-deferred retirement accounts such as 401(k) plans with financial assets held outside these accounts, but these different asset components are not directly comparable. Taxes and in some cases penalties are due when assets are withdrawn from some retirement saving plans. These factors imply that a dollar held inside a retirement account may be less valuable in supporting retirement income than a dollar held in a similar asset outside these accounts. This is particularly important for households that are considering withdrawing assets from the tax-deferred accounts in the near future. For households with long deferral horizons, the opportunity for tax-free compound returns in retirement accounts can permit a dollar inside such an account to support more retirement consumption than a dollar outside such accounts, even though the account principal will be taxed on distribution. This paper illustrates the potential differences in the retirement support value of a dollar of invested in a bond, or in corporate stock, inside and outside tax-deferred accounts. It draws on a range of data sources to calibrate the value of the tax burden, and the benefit of compound growth, for assets held in retirement accounts, and describes the differences in relative valuation for households of different ages.

Notes:

Print version record

March 2004.