Tax Incentives for Retirement Savings

Tax Incentives for Retirement Savings. Urban Institute. Eric Toder, Surachai Khitatrakun, and Aravind Boddupalli. May 11, 2020

Federal tax law provides substantial tax incentives for retirement saving. These include the deferral of taxes on contributions to retirement savings accounts by employers, employees, and self-employed taxpayers and the earnings on these contributions until the funds are withdrawn in retirement for traditional retirement accounts; the exemption of investment income accrued within retirement accounts for Roth retirement accounts; and a retirement savings tax credit for low-income taxpayers. This chartbook explores the implications of current-law income tax incentives for retirement savings, illustrates alternative ways of measuring the tax benefits they generate, and analyzes the distributional impacts of alternative tax proposals to encourage retirement saving. We find that tax incentives for retirement saving provide the largest benefits as a share of income to upper-middle-income taxpayers. [Note: contains copyrighted material].

[PDF format, 24 pages].

From Saving to Spending: A Proposal to Convert Retirement Account Balances into Automatic and Flexible Income

From Saving to Spending: A Proposal to Convert Retirement Account Balances into Automatic and Flexible Income. Brookings Institution. David C. John et al. July 31, 2019

Converting retirement savings balances into a stream of retirement income is one of the most difficult financial decisions that households need to make. New financial products, however, offer people alternative ways to receive retirement income. We propose a default decumulation solution that could be added to retirement plans to simplify decumulation choices in much the same way that automatic choices have simplified enrollment, contribution, and investment allocation decisions for millions of savers. Our proposal centers on pooled investment accounts known as managed payout funds that deliver monthly income that is likely, though not guaranteed, to last a lifetime. Coupled with longevity annuities that begin to make payments when the owner reaches an advanced age and a separate fund for emergencies and extraordinary payments, managed payout funds could help protect retirees from longevity risk without unduly reducing their current living standards. [Note: contains copyrighted material].

[PDF format, 27 pages].

How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation

How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation. Brookings Institution. William G. Gale, Hilary Gelfond, and Jason Fichtner. March 21, 2019

In “How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation” William G. Gale, Hilary Gelfond, and Jason Fichtner consider prospects for retirement saving for members of the millennial generation, who will be between ages 54 and 69 in 2050. Adequacy of retirement saving preparation among current and near-retirees is marked by significant heterogeneity, a characteristic that will likely hold for Millennials as well. In preparing for retirement, Millennials will have several advantages relative to previous generations, such as more education, longer working lives, and more flexible work arrangements, but also several disadvantages, including having to take more responsibility for their own retirement plans and marrying and bearing children at later ages. The millennial generation contains a significantly higher percentage of minorities than previous generations. The authors find that minority households have tended to accumulate less wealth than whites in the past, even after controlling for income, education, and marital status, and the difference appears to be growing over time for black households relative to whites. Whether these trends persist is central to understanding how the Millennials will fare in retirement. [Note: contains copyrighted material].

[PDF format, 51 pages].

Proposals to Keep Older People in the Labor Force

Proposals to Keep Older People in the Labor Force. Brookings Institution. Alicia H. Munnell and Abigail N. Walters. January 24, 2019

Older people need to work longer in order to ensure a secure retirement. Social Security, the backbone of the retirement system, will not replace as much preretirement income in the future as it does today. Employer-sponsored retirement plans also involve considerably more uncertainty, given the shift from defined benefit plans to 401(k) plans. With these institutional saving arrangements on the decline, people could decide to save more on their own. But personal saving outside employer plans is virtually nonexistent, with the exception of home equity—an asset that retirees are reluctant to tap. Combine the retirement income crunch with the dramatic increase in life expectancy and growing health care costs, and continued employment in later life is the best option for ensuring financial security. The challenge is to ensure that older Americans plan to keep working and that employers retain and hire them. [Note: contains copyrighted material].

[PDF format, 25 pages].

The Retirement Revolution: Regulatory Reform to Enable Behavioral Change

The Retirement Revolution: Regulatory Reform to Enable Behavioral Change. Brookings Institution. Martin Neil Baily and Benjamin H. Harris. June 8, 2018

 The American retirement landscape is constantly in flux. American retirement went from an experience dominated by short retirements and pensions for some to one financed increasingly by 401(k)s with decades-long retirements for many.

While this evolution has advantaged some workers, it has also resulted in serious challenges that have been exacerbated by both inadequate and poorly designed saving incentives, as well as a private insurance market that is insufficient to meet the needs of millions of retirees wanting to achieve a secure retirement. Fixing this system is a complicated endeavor, requiring widespread changes across the landscape. [Note: contains copyrighted material].

 [PDF format, 18 pages].

Delayed Retirement and the Growth in Income Inequality at Older Ages

Delayed Retirement and the Growth in Income Inequality at Older Ages. Urban Institute. Richard W. Johnson. February 1, 2018

 As concerns about retirement savings have intensified, many older adults have begun working beyond traditional retirement age. By working longer, they can improve their retirement security by increasing their future monthly Social Security payments and shortening the time they must rely on their savings. But does delaying retirement deepen income inequality for older adults by leaving those with health problems behind? [Note: contains copyrighted material].

 [PDF format, 35 pages].

Number of Workers per Retiree Declines Worldwide

Number of Workers per Retiree Declines Worldwide. YaleGlobal. Joseph Chamie. December 22, 2015.

Most governments must juggle budgets and confront the fact that the world has fewer people of working age to support the swelling ranks of the elderly. Chamie analyzes the Potential Support Ratio, or PSR, and suggests the statistic could reveal more about the overall health of an economy than GDP or other common indicators. “The PSR has weighty implications for governments and businesses concerning the labor force, taxation, education, housing, production and consumption, retirement, pensions and health services,” Chamie writes. “The unprecedented shift towards a larger proportion of older persons and concomitant declines in workers is gradually and inexorably necessitating redesign of national economies.” [Note: contains copyrighted material].

[HTML format, various paging].

Fixing the Drain on Retirement Savings: How Retirement Fees Are Straining the Middle Class and What We Can Do about Them

Fixing the Drain on Retirement Savings: How Retirement Fees Are Straining the Middle Class and What We Can Do about Them. Center for American Progress. Jennifer Erickson and David Madland. April 11, 2014.

Less than one in five American workers in private industry has access to defined benefit pension plans. As a result, most Americans’ quality of life during retirement depends on whether they have invested in retirement savings vehicles such as 401(k)s and Individual Retirement Accounts, or IRAs, and how their investments perform. The reality is, the corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned. Clearer, more transparent information has helped inform consumers about a variety of decisions from choosing between appliances to choosing between dinner options, according to the report. [Note: contains copyrighted material].

[PDF format, 13 pages, 353.46 KB].

Do Financial Knowledge, Behavior, and Well-Being Differ by Gender?

Do Financial Knowledge, Behavior, and Well-Being Differ by Gender? Urban Institute. Brett Theodos et al. March 31, 2014.

Using the National Financial Capability Survey, the report examines differences among men and women in financial knowledge, behavior, and well-being. It finds that women are less financially knowledgeable than men. Women are less willing than men to take financial risks and have more credit cards than men. However, women are equally likely to pay their credit cards in full every month and are equally likely to save for retirement. More differences by gender arise when men and women are separated by family type. Unmarried women with dependent children are worse-off and likely have other financial stresses. [Note: contains copyrighted material].

[PDF format, 8 pages, 421.4 KB].

A Framework for Restructuring the Military Retirement System

A Framework for Restructuring the Military Retirement System. Strategic Studies Institute. David S. Lyle et al. July 24, 2013.

The current military retirement system has been integral to sustaining the All Volunteer Force (AVF). Mounting federal budget challenges, however, have raised concern that the program may become fiscally unsustainable. While several restructuring proposals have emerged, none have considered the implications of these changes to the broader issue of manning an AVF. Changes to the existing system could create military personnel shortfalls, adversely affect servicemember and retiree wellbeing, and reduce public confidence in the Armed Forces. With the right analytical framework in place, however, a more holistic system restructuring is possible, one that avoids these negative effects while significantly reducing costs. A comprehensive framework is provided, as well as a proposal that stands to benefit both servicemembers in terms of value and the military in terms of overall cost savings.

[HTML format with a link to the PDF file, 49 pages]. Executive Summary [PDF format, 2 pages, 566.69 KB].