View Research by Author - Barbara Butrica

More about Barbara Butrica's areas of expertise can be found on this Urban Institute expert's page.

Citation URL: http://www.urban.org/BarbaraButrica

The retirement savings of American households took a big hit when the stock market crashed in 2008. Recently, however, a good portion of these losses has been reversed. This fact sheet follows trends in retirement account balances since the beginning of 2005.

Urban Institute projections suggest the stock market collapse will have small effects on most Americans' retirement incomes. It's estimated that 37 percent of Americans born between 1941 and 1965 owned no stocks when the market crashed in 2008 and that income from assets will account for a small share of retirement income, even for those with stocks. For most retirees, Social Security provides the majority of income. Had Social Security been invested in private accounts with equities, the impact of the crash would have been much larger—positive or negative, depending on one's birth cohort and on future market performance.

The one-third drop in the S&P 500 index between year-end 2007 and 2008 raises concerns about retirement security since Americans now hold more equities through their retirement plans. Those near retirement will fare the worst because they have no time to recoup their losses. Midcareer workers will fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.

High out-of-pocket health care costs may have serious repercussions for older people and their families. This paper examines the impact of health problems at older ages on out-of-pocket health care spending and other types of expenditures. The results show that medical conditions increase health spending, particularly for households ages 51 to 64, but do not generally reduce nonhealth spending. Health conditions do, however, reduce nonhealth spending for low-income households ages 51 to 64, suggesting that holes in the health safety net before the Medicare eligibility age force some low-income people to lower their living standards to cover medical expenses.

Over the last three decades there has been a steady shift from DB to DC pensions. The Pension Protection Act of 2006 may accelerate this trend. This paper examines the impact of an accelerated freeze on the retirement income of boomers. Simulations suggest that such a scenario would produce more losers than winners and reduce average retirement incomes. Income changes will be substantial among high-income workers, who have the highest DB coverage and pension incomes. Late boomers will experience the largest impacts, as they lose their high DB accrual years and have inadequate time to accumulate DC wealth before retirement.

A primary goal of children's savings accounts (CSAs) is to provide children, especially in low-income families, a strong economic footing. The ability to do that, however, depends on how CSAs are designed and how much families contribute. This study uses projections from the Urban Institute's DYNASIM model to estimate the wealth building impact of CSAs under alternative scenarios that vary the design features. The results highlight three points relevant for any asset-building proposal or program: incentives make a difference, targeting can be difficult, and nontaxability matters for all subsidies.

Children's savings accounts (CSAs) are being promoted to improve financial literacy, increase the number of low- to moderate-income households that are banked, and encourage saving for education, homeownership, or retirement. This study uses projections from the Urban Institute's DYNASIM model to estimate the wealth building impact of CSAs. The results suggest that most CSAs will have small balances after accounting for inflation. Still, such accounts could help get children, particularly those in low-income families, into financial instruments that demonstrate the value of saving and of compound interest.

Low-wage workers find it difficult to save for retirement. Without savings, they will have to rely on Social Security and pensions. Yet these income sources are based on earnings, which means that low-wage workers will have lower Social Security and pension benefits than higher-wage workers. This brief assesses whether boomers with low earnings between ages 22 and 62 are destined for low income at age 67. We find that nearly two-thirds of this group will end up with low income at retirement, but more than one-third will manage to defy the odds and escape being among the lowest-income older Americans.

This study uses the Urban Institute's DYNASIM model to project wealth and income at retirement for low-income boomers. The findings suggest that most with low lifetime earnings will also have low incomes at older ages unless they either continue working or move in with others who help support them financially. Saving more, working more consistently over their lifetime, and delaying retirement is projected to improve outcomes for low-earning boomers, but none of these actions will increase retirement living standards dramatically.

One way to achieve an ownership society is to endow all children with savings accounts starting at birth. This report shows that specific design features of a children's savings account program will impact the distribution of wealth. For example, non-taxability of account earnings distributes significantly more benefits to higher-income groups than to lower-income groups. Also, because many families experience mobility over their lifetimes, a significant portion of benefits conditioned on low annual income will accrue to middle- and higher-income families. Regardless, these accounts could be important in getting children banked and teaching them the value of saving and compound interest.

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