New Estimates of the Future Path of 401(k) Assets By.pdf

New Estimates of the Future Path of 401(k) Assets By James Poterba MIT and NBER Steven Venti Dartmouth College and NBER David A. Wise Harvard University and NBER October 2007 Abstract: The future paths of 401(k) contributions and withdrawals, and the associated path of 401(k) asset values, will affect both the preparation of future retirees for their retirement years and the income tax revenues of the federal and state governments. In this paper, we project the future growth of assets in self- directed personal retirement plans, such as 401(k) plans, at age 65 for cohorts attaining that age between now and 2040. We also project the ratio of 401(k) assets at 65 to prior earnings, and the ratio of aggregate 401(k) account balances to GDP. While there is substantial uncertainty in the future path of 401(k) balances, our projections of the future means for these balances suggest that cohorts that attain age 65 in future decades will have accumulated substantially more retirement saving (in real dollars) than current retirement-age cohorts. Our projections also highlight the drag that pre-retirement withdrawals and management fees place on asset accumulation. The research reported herein was begun pursuant to grant #10-P-98363-1 from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. For subsequent research, we also received funding from the National Institute of Aging through grant P01 AG005842 to the National Bureau of Economic Research and from the National Science Foundation (Poterba). We are grateful to Gary Engelhardt, Alicia Munnell, Joshua Rauh, and participants in the Tax Policy and the Economy conference for helpful comments and suggestions. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government or the NBER. Over the past two and a half decades there has be