Households without employer-sponsored defined contribution (DC) pension plans or individual retirement accounts (IRA) have lower incomes and tax rates than households with those plans. The households are also likely to have limited additional resources to draw upon in retirement, according to General Accounting Office (GAO) estimates.
The GAO research shows the median adjusted gross income for households without DC plans or IRAs is $32,000, compared to $75,000 for those that do have them. The median marginal tax rate for households without DC plans or IRAs is 15 percent, compared to 25 percent for households with those savings vehicles.
A defined benefit (DB) pension plan could provide a monthly benefit during retirement years for those without a DC plan or IRA; however, in 2010 only 15 percent of married households and 11 percent of single households without a DC plan or IRA had a DB plan, the GAO data shows.
The existing Saver’s Credit tax incentive could result in small increases in a household’s retirement annuity — that is, the household’s annual retirement income received from DC or DB plans. GAO estimates that, on account of this credit, the median annuity increase for households in the lowest earnings quartile ($929-34,377) would be $155.