Fed Report Finds Participation Flat, Retirement Balances Up ‘Substantially’
A new report from the Federal Reserve finds that while retirement plan participation remained relatively flat over the past three years, the median and average value of those retirement plan accounts rose “substantially.”
The 2013 Survey of Consumer Finances (SCF) noted that the conditional median value of retirement accounts rose 25%, from $47,200 in 2010 to $59,000 in 2013, and the mean value rose 10%, from $183,400 in 2010 to $201,300 in 2013. The report said the growth was likely explained by “a combination of resurgent stock markets and increased contributions by those who participated in retirement plans.”
The report also noted that ownership of retirement accounts — including individual retirement accounts (IRAs), Keogh accounts, and employer-sponsored accounts, such as 401(k), 403(b) and thrift savings accounts — slipped below 50% in 2013, though participation levels rebounded slightly for upper-middle income families since the 2010 SCF.
The report notes that those in the bottom half of the usual income distribution saw overall declines in retirement plan participation; from 48.2% in 2007 to 40.2% in 2013. However, the report explains that families in the next 40% of the income distribution saw only a slight net decline in overall retirement plan participation between 2007 and 2013 and, in fact, between 2010 and 2013, experienced a slight increase in participation (driven by increases in participation for DB, DC and IRA classes of retirement assets). Families in the top 10% of the income distribution saw a slight increase in retirement plan participation from 2007 to 2013 — but that was 94.6% in 2013, just topping the 94.1% seen in 2007.
The SCF reported that the average combined IRA and DC pension balance for families owning those assets in the lowest income group was $39,100 in 2013 — close to the 2010 average balance of $40,500, but well off the 2007 value of $50,600. Those in the upper-middle income group saw an increase in their average total balance between 2007 and 2010, but between 2010 and 2013, the average balance for this group increased by approximately $20,000 (16%), from $126,900 to $147,300. However, average balances fell for those in the top income group, and particularly for those at the very top. According to the report, the fraction of families in the top 10% of the income distribution with retirement account balances exceeding $1,000,000 fell from 14% in 2010 to 9% in 2013.
On the broader concept of savings, between 2010 and 2013, the proportion of all families that saved remained basically constant (rising from only slightly from 52% to 53%), though the fraction of families who reported saving in the 2013 SCF is still lower than it was in the 2007 survey, when the fraction of families that saved was 56.4%. However, as was the case with retirement plan participation, there were notable differences between income groups. In 2013, the fraction of families in the top income group that saved was 82.4% — more than double the 40.2% that saved in the lowest income group.
Between 2007 and 2010, the fraction of families that saved fell in each of the three income groupings, while between 2010 and 2013, the fraction of families that saved fell for the lowest income group, but rose for the other two groups. The fraction of families who saved in the bottom 50% and the next 40% of the income distribution have yet to regain the level of savings found in the 2007 survey, and for those families in the top 10% of the income distribution, the fraction saving now exceeds that found in 2007.
Different age groups experienced very different trends in net worth between 2010 and 2013. Both mean and median net worth increased for those under age 45, decreased for those between age 45 and 64, increased for those between age 65 and 74, and decreased for the oldest group. Increases were generally larger for mean net worth than for median net worth, while declines were similar in magnitude for the two measures. Gains in median net worth ranged between 3% and 5%, while declines ranged between 14% and 17%.
What Is the SCF?
The Survey of Consumer Finances is, as its name suggests, a survey of consumer households “to provide detailed information on the finances of U.S. families.” It is conducted every three years by the Federal Reserve, and is eagerly awaited and widely used — from analysis at the Federal Reserve and other branches of government to scholarly work at the major economic research centers.
As valuable as the SCF information is, and as much coverage as it’s likely to generate over the next few months, advisors should remember that it contains self-reported information from approximately 6,000 households in 2013, which is to say the results are what individuals told the surveying organizations on a range of household finance issues (typically over a 90-minute interviewing period). Of the roughly 6,500 households in the 2010 SCF, only about 2,100 had defined contribution (401(k)-type) retirement accounts. Also, the SCF does not necessarily include the same households from one survey period to the next.