How Will Defined Contribution Pension Plans Affect Retirement Income? / Andrew A. Samwick, Jonathan Skinner.

Format:

Book

Author/Creator:

Samwick, Andrew A.

Contributor:

National Bureau of Economic Research.

Skinner, Jonathan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6645.

NBER working paper series no. w6645

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

How has the emergence of defined contribution pension plans, such as 401(k)s, affected the financial security of future retirees? We consider this question using a detailed survey of pension formulas in the Survey of Consumer Finances. Our simulations show that average and median pension benefits are higher under defined contribution plans that for defined benefit plans. Defined benefit plans are slightly better at providing minimum benefits, but for plausible values of risk aversion, a defined contribution plan drawn randomly from those available in 1995 is still preferred to a defined benefit plan drawn randomly from those available in 1983. This result is robust to different assumptions regarding the spending of defined contribution balances between jobs, equity rates of return, and the date of retirement. In short, we suggest that defined contribution plans can strengthen the financial security of retirees.

Notes:

Print version record

July 1998.