Another Look at the Tax-Favored Retirement Savings Puzzle.

Abstract This paper examines the relationship between three forms of tax-favored retirement savings and other savings. The tax-favored retirement savings vehicles include Individual Retirement Accounts, tax-deferred compensation plans, and private pension plans. We find a positive relationship between mean net worth increases from 1983 to 1986 and the number of tax-favored investment vehicles owned by house-holds. We use a regression to control for other factors that may influence savings behavior and find a weak, but generally negative, statistical relationship between tax-deferred retirement savings and other savings. Our examination of attitudinal questions regarding savings behavior discloses that households who increasingly employ tax-deferred investment vehicles have an increased propensity to save, but their savings behavior is influenced less by increased rates of return. The nature of the results tends to support the view that tax-deferred retirement savings do not increase national savings by a meaningful amount.