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78 Soc. Sec. Bull. 1 (2018)
Retirement Savings Inequality: Different Effects of Earnings Shocks, Portfolio Selections, and Employer Contributions by Worker Earnings Level

handle is hein.journals/ssbul78 and id is 136 raw text is: RETIREMENT SAVINGS INEQUALITY: DIFFERENT EFFECTS OF EARNINGS SHOCKS, PORTFOLIO SELECTIONS, AND EMPLOYER CONTRIBUTIONS BY WORKER EARNINGs LEVEL by Joelle Saad-Lessler, Teresa Ghilarducci, and Gayle L. Reznik* After the Great Recession of2007-2009, 64 percent ofhigher-earning workers and 56 percent of lower earn- ers experienced increases in their accumulated retirement savings. For our 2009-2011 study period, we match Survey ofIncome and Program Participation data to Social Security Administration earnings records to exam- ine retirement savings outcomes by earnings level and to identify factors that may underlie differences. The number ofyears with an earnings loss of 10 percent or more, the number ofnonemployment spells, a decrease in employer contributions to a worker's defined contribution retirement plan, and less diversified investment portfolios barely affect the accumulated savings of higher earners, but are associated with decreased savings for lower earners. These differences may contribute to a growing retirement wealth gap. Introduction This study examines how the accumulated discretion- ary retirement savings of workers differed by earn- ings level in the first years after the Great Recession. We look specifically at workers' combined holdings in individual retirement accounts (IRAs), Keogh plans, and, in particular, employer-sponsored defined contribution (DC) plans.' Analyzing the economic experiences of workers during 2009-2011 reveals that higher earners were more likely to accumulate greater retirement savings than lower earners were. Sixty-four percent of workers at the top of the earnings distribu- tion experienced an increase in retirement savings compared with 56 percent of those at the bottom. Higher earners may have fared better because of more favorable economic and life events and because higher and lower earners exhibit different voluntary contribu- tion behaviors (Gist and Hatch 2014). This study uses panel data to investigate changes in retirement savings from 2009 through 2011, and the determinants of those changes, by workers' earnings levels.2 Understanding how workers' earnings levels predict their ability to increase their retirement savings could inform changes to DC plan features that might help lower earners save in volatile economic condi- tions and slow or reverse the growth in the retirement wealth gap. We report four key findings. First, each instance of annual earnings loss of 10 percent or more through 2009 was associated with a loss of retirement savings of $450 during 2009-2011 for lower earners, while the effect was negligible for higher earners. Second, for every week a worker was not employed during 2009- 2011, lower earners lost $55 in retirement savings, but * Joelle Saad-Lessler is the Associate Industry Professor in the School ofBusiness at Stevens Institute of Technology. Teresa Ghilarducci is the Bernard L. and Irene Schwartz Professor of Economics and Director, Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York. Gayle Reznik is with the Office ofRetirement Policy, Office ofRetirement and Disability Policy, Social Security Administration. Note: Contents of this publication are not copyrighted; any items may be reprinted, but citation of the Social Security Bulletin as the source is requested. The Bulletin is available on the web athttps:/ www.ssa.gov/policy/docs/ssb/ The findings and conclusions presented in the Bulletin are those of the authors and do not necessarily represent the views of the Social Security Administration. Social Security Bulletin, Vol. 78, No. 3, 2018 1

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