A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for May 22, 2002.

Retirement income adequacy falls
Since the early 1980s, two trends influenced the retirement savings of working families. First, traditional defined-benefit pension plans declined, mainly because the industries that typically offered such plans declined, too. In comparison, defined-contribution plans, such as Keogh, IRAs or 401(k)s, became more widespread. Second, Wall Street’s prolonged bear market ended in the early 1990s and became an extended bull market. Between 1989 and 1998 alone, the stock market grew by 248%.

The combination of more defined-contribution plans and an unprecedented stock market run-up would lead one to expect rising retirement wealth and improved retirement income security, but exactly the opposite occured. The share of households age 47 to 64 that could expect to receive retirement incomes below the poverty line rose from 17.2% in 1989 to 18.5% in 1998 (see Figure 1 below). Similarly, the share of households in the same age group that could replace less than 50% of their current income grew from 29.9% in 1989 to 42.5% in 1998 (see Figure 2 below).

The reasons why the proliferation of defined-contribution plans and the bull market did not translate into improved retirement income adequacy are twofold: pension coverage remained relatively stable for the past two decades, and overall wealth improvements were accruing largely to the very wealthy and not to the typical household. For the typical household, retirement wealth and retirement income adequacy has declined since the 1980s.

This week’s Snapshot by EPI economist Christian Weller.

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