Wednesday, May 23, 2018

The pending retiree crisis

In America, 56% of all low-income households face the risk of being unable to maintain their pre-retirement standard of living once they stop working. For middle-income households, the figure is 54%, but for high-income households, it's only 41%. In other words, fewer than half of all middle- and low-income households will be able to maintain their lifestyles in retirement, but nearly two-thirds of high-income households will.

Lower-income workers find it harder to work later in life, possibly because their options tend more toward physical work rather than desk jobs. That problem is compounded by an increase in Social Security's normal retirement age to 67 (for those born in 1962 or later) from 65 (for those born in 1939 or earlier). The change means that workers taking retirement at age 65 will either have to wait before receiving their full Social Security benefits, or accept a lower monthly benefit at 65. The change places an added burden on lower-income people because their life expectancy is shorter on average than wealthier retirees. 

"Just as the wealth and income gap between the well-to-do and working people is growing," the Boston College's authoritative Center for Retirement Research blog  observes, "so too is retirement inequality."

Defined contribution retirement plans such as 401(k) plans, have supplanted traditional defined benefit pensions for millions of workers, especially in the private sector. 
Because d

More than two-thirds of households in the top 20% of earners had a 401(k) plan, but only 4% of the bottom fifth on the income ladder did. "The bottom 60% of working-age families receive 17% of total income, but hold 7% of retirement account balances," she observed. "Meanwhile, the top 20% receive 63% of income and hold 74% of retirement account balances."
efined contribution plans require workers to set aside part of their income for the future, it's a bigger burden on low- and moderate-income families, which have less disposable income than their affluent colleagues. They're also more likely to see their household finances upended by divorce, layoffs and unexpected medical bills.

Income inequality is no myth, and neither is the retirement crisis.

No comments: