Nurturing the Nest Egg: New Study Shows Simplicity and Matching Contributions Can Significantly Boost IRA Contributions Among Low- to Middle-Income Americans

Nurturing the Nest Egg: New Study Shows Simplicity and Matching Contributions Can Significantly Boost IRA Contributions Among Low- to Middle-Income Americans

Washington, D.C. - 05/09/2005 - A groundbreaking study released today by the Pew Charitable Trusts' Retirement Security Project shows for the first time that a simple savings process combined with well-targeted financial incentives can result in significant increases in retirement contributions among moderate- and low-income workers.

The study was conducted by a team of researchers from Massachusetts Institute of Technology, Harvard University, University of California, Berkeley and the Brookings Institution. The researchers worked in coordination with H&R Block, which organized and funded the field experiment. Approximately 15,000 tax filers from the St. Louis area participated in the research effort.

“For the first time, we have confirmed through a randomized field experiment what we had intuitively believed to be true – that middle- and lower-income earners will put away funds for retirement if it's easy and if effective incentives are offered,” said Peter Orszag, director of The Retirement Security Project.

“This study shows that if you offer a simple savings vehicle, the appropriate incentives, and professional assistance, IRA contributions increase markedly, even among moderate- and low-income households,” Orszag added.

The study reaches three broad conclusions:

  • First, stronger financial incentives can encourage significant increases in contributions to retirement accounts. According to the study, IRA contributions were four to eight times higher when people were offered match rates ranging from 20 percent to 50 percent for those contributions.     
  • Second, the financial incentives need to be transparent and understandable. The study suggested that a simple matching contribution is significantly more effective at boosting IRA contributions than more complicated forms of financial incentives.     
  • Finally, the strongest results come from a combination of transparent and effective financial incentives, easily accessible savings vehicles, and tax preparer assistance.

The IRA take-up rates and average contributions for the varying match rates were as follows:


Match Rate




 IRA Take-Up Rate  3%  10%  17%
 Average IRA Contribution*                      (match not included)                             $860  $1280  $1310

 Average IRA Contribution*                       (match included)

 $860  $1480  $1870

* Average among those contributing

Bernie Wilson, vice president of H&R Block, commented on the results, “At H&R Block, we have helped nearly 500,000 low- and moderate-income clients contribute more than $285 million to IRA accounts. Many of them had never contributed to an IRA before, and this study provides guidance on how we can substantially increase that number. We're pleased to have had the opportunity to help advance the state of knowledge in this area, which is so important to so many.”

Orszag said the study provides insight into the most effective ways of targeting federal savings incentives for middle- and lower-income workers. Traditional methods, such as tax deferral on contributions to IRAs and 401(k)s, have had minimal impact because their value is low or non-existent for middle- and lower-income workers. Simple matching contributions, on the other hand, provide incentives regardless of a worker's tax rate and thus offer a more promising means of encouraging retirement savings.

“Many scholars and economists have been perplexed by the lack of savings induced by our current incentive structure, which is based largely on reducing tax burdens,'' said Jeff Brown, an economist at the University of Illinois and former staff member of President Bush's Council of Economic Advisers. “This study from The Retirement Security Project offers some clear direction on the type of incentives that might work best looking forward.”

The research team included Esther Duflo, professor of economics at MIT; William Gale, senior fellow at the Brookings Institution; Jeffrey Liebman, associate professor of public policy at Harvard University; Orszag, director of The Retirement Security Project; and Emmanuel Saez, associate professor of economics at University of California, Berkeley. The entire results of the study are available at

Pew is no longer active in this line of work, but for more information visit the Retirement Security Project on