Who Benefits from Retirement Saving Incentives in the U.S.? Evidence on Racial Gaps in Retirement Wealth Accumulation

From Taha Choukhmane, Jorge Colmenares, Cormac O’Dea, Jonathan Rothbaum, and Lawrence Schmidt

U.S. employers and the federal government devote more than 1.5% of GDP annually towards
promoting Defined Contribution retirement saving. We study the distributional and lifetime
impact of these savings incentives across racial groups using a new employer-employee linked data set covering millions of Americans. The average contribution rate of Black and Hispanic workers is roughly 40% lower than that of White workers. The rich and the children of the rich save more; racial differences in own and parental incomes account for a large share of the racial contribution gaps. Tax and employer matching subsidies further amplify these saving differences by channeling more resources to those who save more. We estimate that breaking the link between contribution choices and saving subsidies, through revenue-neutral reforms, would significantly reduce racial gaps and intergenerational persistence in wealth.

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From Our Researchers

Taha Choukhmane

Taha Choukhmane

Class of 1947 Career Development Assistant Professor

Taha Choukhmane is the Class of 1947 Career Development Assistant Professor and an Assistant Professor of Finance at the MIT Sloan School of Management.He was most recently a postdoctoral fellow at the National Bureau of Economic Research. His…

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Lawrence D. W. Schmidt

Lawrence D. W. Schmidt

Victor J. Menezes (1972) Career Development Assistant Professor of Finance

Lawrence D. W. Schmidt is the Victor J. Menezes (1972) Career Development Assistant Professor of Finance. He is an an applied economist working at the intersection of finance and macro-labor. Schmidt’s research has developed new insights about…

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Learn More about Retirement

Current Retirement projects from the Consumer Finance Initiative cover topics including Target Date Funds, retirement savings and portfolio choices, and racial gaps in retirement savings.  Find more Retirement research here.