Household Portfolios and Retirement Saving over the Life Cycle

This paper shows a dramatic change in the investment behavior of the U.S. middleclass. During the 2010s, the average share of investable wealth that people hold in stocks is roughly ten percent larger than in the 1990s, and now has a strong lifecycle pattern, rising modestly early in life and falling significantly as retirement approaches. These changes in portfolio allocation were facilitated by the Pension Protection Act (PPA) of 2006, which allowed employers to adopt target date funds (TDFs) as default options in retirement saving plans. Young workers enrolling at an employer shortly after its plan adopts TDFs as defaults have higher equity shares than those who enroll at that same employer shortly before. In contrast to what we find for portfolios, retirement contribution rates over the life-cycle have been relatively stable across cohorts over time, and we find no evidence that the PPA directly raised contribution rates on average.