Importance of Individual Account Retirement Plans and Home Equity in Family Total Wealth

This paper examines the level of assets held by families with a working family head ages 25-64 in individual account (IA) retirement plans (employment-based defined contribution (DC) plans and individual retirement accounts (IRAs)) relative to all of their financial assets. This study also shows the importance of home equity held by families. Data from the 2013 Survey of Consumer Finances (SCF), the Federal Reserve Board’s triennial survey of wealth, are used to show the level of these types of assets held by American families. Among families with a working family head ages 25 to 64, 18.2 percent have less than $1,000 in financial assets, 31.2 percent have less than $5,000, and 38.9 percent have less than $10,000. Furthermore, of these families without an IA plan, 79.6 percent have financial assets less than $10,000, compared with only 13.1 percent of the families with an IA plan. The percentage of families with a working head ages 25-64 that have one of these types of plans range from 50.4 percent for families with a head ages 25-34 to 71.4 percent for those families with a head ages 55-64. The median percentage of home equity plus IA assets relative to home equity plus financial assets is 78.2 percent for all families with a working head ages 25-64. This percentage increases significantly with age from 55.0 percent for those families with heads ages 25-34 to 87.4 percent for those families with heads ages 55-64. When focusing only on those families that actually have IA assets, the median percentages of financial assets that these IA plans represent substantially increases. For families that have any IA assets, the median percentage of financial assets plus home equity that are represented by IA assets plus home equity is 86.0 percent. For all families with a working head ages 25-64, the median debt-to-asset ratio is 33.4 percent. However, for families with working heads ages 55-64, the median debt-to-asset ratio is 13.4 percent for families with IA assets compared with 34.2 percent for families without IA assets. Overall, those with IA assets have significantly more assets, and the IA assets make up a large share of financial assets. Home equity tends to represent the largest share of financial assets plus home equity. Consequently, when measuring families’ financial asset holdings at retirement, it is overwhelmingly the case that just IA assets plus home equity represent almost all of what families have for retirement outside of Social Security and defined benefit pension plans.