How Will Defined Contribution Pension Plans Affect Retirement Income?

Andrew A. Samwick, Jonathan Skinner

NBER Working Paper No. 6645
Issued in July 1998
NBER Program(s):Aging, Public Economics

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.

download in pdf format
   (180 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6645

Published: Samwick, Andrew A. and Jonathan Skinner. "How Will 401(k) Pension Plans Affect Retirement Income?," American Economic Review, 2004, v94(1,Mar), 329-343.

Users who downloaded this paper also downloaded* these:
Bodie, Marcus, and Merton Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?
Choi, Laibson, Madrian, and Metrick Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance
Samwick and Skinner w5568 Abandoning the Nest Egg? 401(k) Plans and Inadequate Pension Saving
Bodie w2917 Pensions as Retirement Income Insurance
Gustman and Steinmeier w3086 The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us