Retirement Arrangements of the Self-Employed

When compared to wage earners, the take up rate of qualified retirement plans by the self-employed seems to be much lower. This paper explores the various factors that influence the observed participation and contributions to such plans. The findings show that participation declines with business interest expenses suggesting liquidity constraints. In contrast, both participation and contributions rise with mortgage interest expenses. They also rise with interest and dividend income, self-employment income, as well as tax rates. On the other hand, they decline with the size of partnership income. The latter is perhaps a reflection of reporting conventions employed by high income partners which may mask the true participation rate.