The Financial Crisis and Saving in Personal Retirement Accounts

Published: 2013


Personal saving accounts (PRAs), especially 401(k) plans have become an increasingly important mode of retirement saving. Our goal is to provide new evidence on the effect of the recent financial crisis, and the associated decline in employment, on PRA saving. Since the impact of the crisis is unlikely to be evenly distributed across the population, we consider how its effects vary by demographic characteristics. We anticipate that one of the ways the crisis may influence PRA balances is through its negative effect on employment and earnings. Thus we first estimate the effect of the crisis on these outcomes and then consider 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 of crisis period (2008-2010). We find very few statistically significant differences between the pre-crisis and the crisis period parameter estimates. 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.

Key Findings