The Financial Crisis and Saving in Personal Retirement Accounts

James Poterba, Steven Venti, David Wise

NBER Retirement Research Center Paper No. NB 13-02
Issued in November 2013

Personal retirement accounts (PRAs), especially 401(k) plans, have become an increasingly important mode of retirement saving. This paper provides new evidence on the effect of the recent financial crisis, and the associated decline in employment, on PRA saving. We particularly examine how these effects vary across demographic groups. We explore how crisis-related changes in employment and earnings affected PRA balances. We do this by estimating the effect of the crisis on these outcomes and then by considering how PRA ownership and balances depend on employment and earnings as well as other covariates. To assess the effect of the crisis we estimate the relationship between age (and other covariates) and the labor market and PRA outcomes in years prior to the crisis (2004-2006) and then estimate how these relationships change during the crisis period (2008-2010). We find very few statistically significant differences in the parameter estimates for the pre-crisis and the crisis periods. We use the model to predict age profiles of employment rates, earnings given employment, PRA ownership, and PRA balances given ownership in the pre-crisis and crisis periods. We give special attention to the relationship between education and PRA ownership and balances.

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