Just as the wealth and income gap between the well-to-do and working people is growing, so, too is retirement inequality.
Researchers increasingly want to know what’s behind this phenomenon. They’ve uncovered reasons ranging from low-income workers’ greater difficulty saving to the well-to-do’s longer life spans – which means they’ll get more out of their Social Security benefits.
Having a low income doesn’t necessarily mean a retiree can’t live comfortably. What matters is how much of their earnings they will be able to replace with Social Security and any savings.
Even by this standard, lower-income workers come up short: 56 percent are at risk of having a lower standard of living when they retire. The decline is slightly less for middle-income workers – 54 percent – but the risks fall sharply, to 41 percent, for the people at the top.
The roots of this inequality span Americans’ lives from cradle to grave:
In our 401(k) system, financial security in retirement increasingly hinges on how much people can save in their 401(k)s as they work. But it’s harder for low-income workers to save, mainly because their employers are less likely to offer a savings plan, according to a 2017 study by The New School for Social Research. The study also found that basic living expenses gobble up more of their paychecks, and they experience more financial disruptions from layoffs and divorce, leaving less for savings.
Some research assesses inequality trends for specific groups of people. Incomes tend to rise over time, even after being adjusted for inflation, but they rise more slowly for people near the bottom of the earnings scale. Lower earnings translate later to lower retirement incomes. For example, the future retirement income of well-heeled members of Generation X, relative to today’s retirees in the high-income bracket, is estimated to be two times more than it will be for low-income Gen-X retirees, according to an Urban Institute study. …
Betty Taylor is 74 and retired from a job she held for more than a decade filling Spiegel catalog orders and packing them up for shipping – she left in 1984. Diane Taylor, 70, was a packer and then a keypunch operator there between 1982 and 1995.
But the sisters, who live together in their late mother’s house on Chicago’s Southwest Side, couldn’t track down anyone who could confirm that their low-paying jobs entitled them to Spiegel pensions.
This is more common than one might think.
When a single employer or union has continued to maintain its pension plan over several decades, retiring workers know where to go to sign up for their benefits. But the sisters’ pensions got lost amid the confusion and paperwork shuffle around a series of mergers, bankruptcies, and name changes at Spiegel.
The confusion dates back to 1988, when the catalog company, which was founded by Joseph Spiegel after the Civil War, purchased Eddie Bauer. By 2003, Spiegel, loaded down with debt, was filing for bankruptcy protection and was subsequently acquired by the investors in Spiegel’s sole remaining asset, Eddie Bauer. The investors later transferred Spiegel’s pensions to Eddie Bauer’s corporate entity. In 2009, Eddie Bauer also went into bankruptcy, sending the pension funds to their final resting place: the federal Pension Benefit Guaranty Corporation (PBGC), which insures the pensions of failing companies.
Diane felt that a pension, if it existed, could really help out with her precarious finances. And she was pretty certain she remembered a pension from her years at Spiegel. So she started calling around.
“I got the runaround for four years,” she said. “I was persistent, and I was going to keep on until I had one foot in the grave,” Diane said. …Learn More
The 1980s featured bankrupt Texas savings and loans. Then, in the mid-2000s, Countrywide failed to clearly disclose to customers the spike in their subprime mortgage payments in year 3. In 2016, 5 million customers learned about their fabricated Wells Fargo accounts. And last year, Equifax breached 140 million customers’ privacy.
No wonder people are flocking to the friendly credit union in their church, labor union or workplace.
The widespread fraud reports making headlines with regularity have fed a perception that “fraud happens in the banking world and a lot of it goes unpunished,” said Mike Schenk, senior economist for the Credit Union National Association (CUNA).
“It’s not just Countrywide as an abstract concept. It’s that Countrywide put people into these toxic mortgages to make a buck.” The 2008 stock market and housing crashes, fueled partly by the collapse of several subprime lenders, hammered this point home.
CUNA has a bold marketing message: credit unions care more about their customers than impersonal banking behemoths. Schenk said he has the evidence to prove credit unions are benefiting from Wall Street’s financial shenanigans: membership increased an “astonishing” 4 percent in 2017, as the U.S. population grew less than 1 percent.
Of course, most banks aren’t bad guys, and they provide services that small credit unions can’t. Banks frequently upgrade their technology – Bank of America’s ATMs are cutting edge. Large banks also have much larger networks of ATMs and branches, and they can service the large corporate accounts credit unions aren’t equipped to do.
So, what do credit unions do better? Here are their three big advantages: …Learn More
The children in this video have a delightful take on our cultural attitudes and mores about money – what it is, what it can do, and whether to share it.
The interviewer borrowed the format Art Linkletter used when asking kids questions on his Emmy Award-winning television show, “Art Linkletter’s House Party,” which aired between 1952 and 1969 – as boomers and their parents will remember.
The new video about kids and money is posted on the American Financial Services Association Education Foundation’s website. The foundation’s mission is to educate people about responsible money management, starting with young children and teenagers.
The adorable factor makes this 6-minute video fly by.Learn More
Rank-and-file workers’ wages have barely gone up since the 2008-09 recession, despite a U.S. job market firing on all cylinders for several years.
Latinos struggle more than most. Take restaurant workers. They are overrepresented in an industry that expanded rapidly post-recession, putting hundreds of thousands of cooks, waiters, and busboys to work. But “those are some of the worst jobs” says Carmen Rojas, who heads The Workers Lab in Oakland, which supports small entrepreneurs.
Food-service and other low-paying jobs not only lack benefits and security but typically don’t invest heavily in training and don’t provide upward mobility, “proving what it means to debase the promise of work away from opportunity and toward survival,” said Marie Mora of the University of Texas in the Rio Grande Valley.
She and Rojas were panelists at a recent Aspen Institute event to discuss Latino economic challenges and solutions. The focus was on new avenues to increasing their presence among small businesses, which are a good fit for their particular interests, needs, and culture.
There are, of course, extraordinary models of success in the Latino community. Maria Rios emigrated from El Salvador as a teenager and has the gumption of a character in a 19th century Horatio Alger novel. In the early years of her multi-million-dollar recycling and waste company in Houston, she drummed up commercial clients by showing up and pointing out their overflowing dumpsters. “When I see trash, I see opportunity!” she says on Nation Waste Inc.’s website.
“I feel that if I did it, anybody can do it,” she told the other panelists and audience. …Learn More
Millennials, longevity, Americans’ retirement outlook – these are among the topics economists tackle in five interesting research briefs.
Links to each brief below appear at the end of their titles. (Full disclosure: the researchers are at the Center for Retirement Research at Boston College, which funds this blog.)
“Will Millennials Be Ready for Retirement?” – They are the most educated generation. Yet they lag previous generations of young adults in their retirement preparedness. Student loan debt is one big reason.
“National Retirement Risk Index Shows Modest Improvement in 2016” – Rising house prices boosted individuals’ wealth, modestly improving our retirement outlook. But, again, Millennials face significant headwinds.
“Is Working Longer a Good Prescription for All? – Most households’ retirement plans would benefit from working longer, saving more, and delaying Social Security. Low-income and less-educated workers with the most to gain financially, however have fewer job options for postponing retirement. …
Cash-strapped workers understandably are tempted to spend their tax refunds, a sort of financial lifeboat that floats by once a year.
Financial experts see the windfall as something more: an ideal opportunity to sock money away. Yet only about 10 percent of low-income workers save their refunds, even though doing so could prevent the financial dominoes – past due bills, late rent payments, or delayed car repairs – from falling. These are common outcomes when their spending gets out of whack.
Past experiments that tried to encourage cash-strapped low earners to save had modest success. A novel research study looks for clues to what motivates them by examining who spends the refund versus who saves it. The central finding in a Journal of Consumer Affairs article: the people who saved had put some thought into predicting the size of their refunds at the time they filed their taxes. This held true whether their estimates were accurate or not.
The act of estimating in advance “appears to be a form of planning,” said the researchers, University of Rhode Island professor Nilton Porto and Michael Collins, director of the University of Wisconsin’s Center for Financial Security.
Porto said they don’t know the reason estimating leads to saving, but he had one idea. The connection between the two could stem partly from the taxpayer having some advantage, such as financial skill or superior knowledge – in short, they might have higher financial literacy. …Learn More