NCPA - National Center for Policy Analysis

Some People Save, Some Don't -- Regardless of Income Levels

December 20, 2001

Some high-income Americans spend all they can get their hands on during their productive years, largely counting on Social Security to finance their retirement. Conversely, some low earners save and invest relatively high proportions of their incomes for retirement purposes.

According to economists who studied about 7,700 households nearing retirement age -- sorting the households into 10 equal-sized groups:

  • The wealth held by the top 10 percent of households in the group just below the median was 35 times the wealth held by the bottom 10 percent in that very same income group.
  • The dispersion of wealth for higher-income groups was slightly smaller -- but still high.
  • The bottom 20 percent of every income group has zero or negative wealth -- the only exception being households with the highest lifetime income.
  • The top 10 percent of the lowest income group had accumulated more than $150,000 at retirement.

Even though every group in the sample had the opportunity to contribute to an Individual Retirement Account (IRA) or a 401(k) retirement savings plan, only about half the households did so.

The researchers came up with three explanations for the high variations. The first two explanations -- household wealth was significantly affected by chance events such as illnesses or inheritances, and household investments performed very differently -- had relatively small impacts.

But the third -- the propensity to save -- was much more relevant to the outcome.

Source: Hal R. Varian (University of California at Berkeley), "Economic Scene: For Too Many People, Including Some of the Rich, Social Security is the Main Retirement Plan," New York Times, December 20, 2001; based on Stephen F. Venti and David A Wise, "Choice, Chance and Wealth Dispersion at Retirement," Working Paper w7521, February 2000, National Bureau of Economic Research.

For NBER abstract


Browse more articles on Tax and Spending Issues