Posts Tagged "high income"

Workers racing

Retirement System Urgently Needs Fixing

The state of our retirement preparedness is captured in this fact: about half of U.S. private sector workers at any given time are not enrolled in an employer retirement plan.

To be clear, they are not currently enrolled. Some of them have participated in a plan in the past or will in the future. But this inconsistency is the problem, largely because so many employers still don’t offer 401(k) savings plans to their employees.

The financial toll of not saving consistently is modest retirement account balances. Yet saving has become increasingly urgent as traditional pensions have virtually disappeared from the private sector and Social Security is replacing less of workers’ incomes over time.

401k and IRA chartIn 2019 – after several years of economic growth and a surging stock market – the typical working household, ages 55 to 64, that saves in a 401(k) had only $144,000 in its 401(k)s and IRAs combined, the Center for Retirement Research found in an analysis of the Federal Reserve’s 2019 Survey of Consumer Finances.

That’s just $9,000 more than they had in the 2016 survey, and $144,000 won’t go very far.

A $144,000 account would yield $570 per month for retirement if a couple purchases an annuity that pays a guaranteed income for the rest of their lives. For most retirees, the annuity payments – totaling just under $7,000 per year – would be their only source of income outside of Social Security.

There are also enormous differences between high- and low-income households’ savings, which reflect the nation’s economic disparities and uneven employer coverage. The highest-income older households in the study had $805,500 in their combined 401(k) and IRA accounts, compared with just $32,200 for low-income households. …Learn More

Recession’s Hit to Cities Varies Widely

The COVID-19 recession is unlike anything this country has seen.

If the second-quarter contraction were to continue at the same pace for a full year, the economy would shrink by a third! This is the deepest downturn since the Great Depression, and low-income Americans are feeling the brunt of it.

Chart about two California citiesWhat makes this recession unique, however, is that the low-income people living in the most affluent metropolitan areas are worse off than low-income residents of less affluent cities, Harvard economist Raj Chetty explained during a recent interview on Boston’s public radio station, WBUR.

“What’s going on is that affluent folks have the capacity to self-isolate, to work remotely, to not go on vacation,” he said. “So in affluent areas, you see enormous drops in consumer spending and business revenue.”  In these areas, more than half of the lowest-income workers have lost their jobs, and many of them worked in small businesses, he said.

In less affluent cities, people have to go to work and “are out and about more, and business revenue hasn’t fallen nearly as much,” he told his radio host. “In previous recessions, we haven’t seen those sort of patterns.”

Chetty’s point is demonstrated by comparing what happened to consumer spending this year in San Francisco and Fresno, California, on the tracktherecovery.org website he and other economists have created. (Visitors can sort the spending data by state, industry, and consumer income levels, as well as by city.) …Learn More