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WASHINGTON – Ownership of tax-deferred retirement assets such as individual retirement accounts tend to increase with families’ income and net worth for a number of reasons. According to the Federal Reserve Board’s Survey of Consumer Finances (SCF) for 2004, which provides insights into changes in family income and net worth since the 2001 survey, retirement accounts may have been in existence for about 20 years in some households, but they may not have become common until relatively late in the careers of older people. Another reason retirement accounts tend to increase with a family’s income and net worth is because persons age 59-and-a-half or older may make withdrawals without penalty. Families may have also used funds from retirement accounts accumulated from previous employment to purchase an annuity at retirement, the survey indicated. For the 2004 SCF data, 4,522 families were interviewed, and in the 2001 survey, 4,449 were interviewed. More than 60% of families with some type of account plan had one associated with a current or past job, and nearly as many had an IRA or Keogh account; about one-fourth of families with retirement accounts had both types, the survey said. From 2001 to 2004, the fraction of families with retirement accounts fell 2.5 percentage points; the drop offset most of the 3.3 percentage point increase of the preceding three years. Over this time, ownership declined for nearly all groups but key exceptions were families with a retired head of household and families headed by persons aged 55 to 64 or aged 75 or older. In the preceding three years, ownership had been up in almost every demographic group. In a continuation of the trend over the preceding decade, holdings in retirement accounts increased markedly in the 2001-04 period. For those having retirement accounts, the median rose 13.9%, and the mean rose 11.0%. Gains also appeared in the median holdings of most demographic groups over the recent period. One of the largest increases was among nonwhite or Hispanic families, a group for which ownership of such accounts declined substantially in 2004. The 75-or-older age group saw a sizable decline in its median. Although tax-deferred retirement assets are clearly an important element in retirement planning, according to the Fed, families may hold a variety of other assets that are intended, at least in part, to finance retirement. Such other assets might also be used for contingencies as necessary. Similarly, a need for liquidity might drive a family to liquidate or borrow against a tax-deferred retirement asset, even if it will be assessed a penalty for doing so. Social Security and employer-sponsored defined benefit plans were not included in the data. Ownership of other managed assets-personal annuities and trusts with an equity interest and managed investment accounts-is concentrated among families with higher levels of income and wealth and among families headed by persons who are aged 55 or older or who are retired, according to the Fed. Ownership of these assets rose 0.7 percentage point between 2001 and 2004 after a similarly small increase over the previous three years. Across demographic groups, changes in ownership were mixed; ownership increased most-5.5%-for the oldest age group, and it decreased most-5.4%-for the highest wealth group. Of families having such accounts in 2004, 26.3% had only a trust or managed investment account, 68.9% had only an annuity, and 4.9% had both. Between 2001 and 2004, the fraction of families holding any such stock fell 3.3 percentage points, to 48.6%, a level apparently last reached some time between the 1995 and 1998 surveys. Much like ownership of directly held stock, ownership of direct and indirect holdings is more common among higher-income groups and among families headed by persons aged 35 to 64. Over the recent three-year period, ownership declined for all income groups except the top two deciles and for the age groups 55 or older. -

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