Year: 1998
Type: report
Abstract: 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 than 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.
DOI: 10.3386/w6645
Authors: Andrew Samwick, Jonathan Skinner
Institutions: Dartmouth College, National Bureau of Economic Research
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1508701065