Financial
Personal savings
The rate of personal saving, however, is at a historic low. Many households do not save in any systematic way, and personal saving rates have declined by nearly half since 1970. Government efforts to encourage more personal retirement saving seem to have had only marginal effects. Preferential tax treatment for IRAs and 401(k) accounts seems to encourage saving in these vehicles, but they may not necessarily represent totally new saving. Some contributions may merely have been shifted from other forms of saving. Furthermore, low-income families may find it especially difficult to save, and most public assistance programs penalize private saving by requiring low levels of financial assets in order to qualify.
Individual Retirement Accounts (IRAs), created by the Employee Retirement Income Security Act of 1974 (ERISA), are a way of promoting retirement savings for workers who lack employer-sponsored pensions. IRAs, currently available to all workers, are generally established outside the workplace. IRAs can be purchased both with pre-tax and after-tax dollars depending on the type and provisions. Although an estimated 42 percent of households owned some type of IRA as of May 2001, evidence suggests that IRAs serve more as a parking place for distributions from other tax-qualified retirement savings plans than as accounts for active retirement saving. Rollover contributions from other tax-qualified retirement accounts represent an estimated 90 percent of current IRA contributions.
Updated: November 2, 2007
