November 19, 2019
Social Security Eases Racial Disparities
Social Security is a major source of income for most retirees. It is even more important to blacks and Hispanics in a nation that is becoming increasingly diverse.
Social Security is helping to even out the racial and ethnic inequities in income and wealth that exist in the working population and continue in old age, according to a study by the Center for Retirement Research for the Retirement and Disability Research Consortium.
The researchers estimate how much Social Security reduces this inequality by comparing retirement wealth for white, black, and Hispanic-Americans.
Wealth is defined broadly to include obvious things like home equity and financial assets such as 401(k) retirement accounts, certificates of deposit, and money market accounts. In addition, the researchers converted the income that workers get from Social Security and defined benefit pensions into wealth by estimating the total value today of their future benefit checks.
The estimates of wealth, when Social Security is excluded, reveal enormous disparities. The typical white worker in his early- to mid-50s can expect to have about $177,000 in non-Social Security wealth in retirement, compared with just $24,000 for blacks – about a 7 to 1 ratio. Hispanics have $35,000 – or a 5 to 1 ratio.
These ratios improve dramatically, dropping to roughly 2 to 1 when Social Security is added in. The white worker has $378,000 in total wealth, compared with $173,000 for blacks and $186,000 for Hispanics.
Social Security’s progressive benefit formula reduces retirement inequality by replacing more of the income of lower-paid workers. The program also provides nearly universal coverage, whereas many workers do not have access to retirement plans at work. These features help black and Hispanic workers, who tend to have lower incomes and are also less likely to have retirement plans.
“Social Security is the most equal form of retirement wealth and the most important source for most minority households,” the researchers conclude. …Learn More
July 16, 2019
Spotlight on Our Research, Aug. 1-2
Topics for this year’s Retirement and Disability Research Consortium meeting include the opioid crisis, retirement wealth inequality over several decades, trends in Social Security’s disability program, and the impacts of payday loans, college debt, and mortgages on household finances.
Researchers from around the country will present their findings at the annual meeting in Washington, D.C. Anyone with an interest in retirement and disability policy is welcome. Registration will be open through Monday, July 29. For those unable to attend, the event will be live-streamed. The agenda lists all of the studies.
Here are a few:
- Why are 401(k)/IRA Balances Substantially Below Potential?
- The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries
- The Causes and Consequences of State Variation in Healthcare Spending for Individuals with Disabilities
- Forecasting Survival by Socioeconomic Status and Implications for Social Security Benefits
- What is the Extent of Opioid Use among Disability Applicants? …
May 16, 2019
Social, Economic Inequities Grow with Age
Retirement, as portrayed in TV commercials, is the time to indulge a passion, whether tennis, enjoying more time with a spouse, frequent socializing, or civic engagement.
Boston University sociologist Deborah Carr isn’t buying this idealized picture of aging.
“This gilded existence is not within the grasp of all older adults,” she argues in “Golden Years? Social Inequality in Later Life.” “For those on the lower rungs of the ladder,” she writes, retirement is “marked by daily struggle, physical health challenges and economic scarcity.”
Her book, which mines multidisciplinary research on aging, reaches the distressing conclusion that economic inequality not only exists but that it becomes more pronounced as people age and become vulnerable. And this problem will grow and affect more people as the population gets older.
Poverty has actually declined among retirees since the 1960s. But by every measure – health, money, social and family relationships, mental well-being – seniors who have a lower socioeconomic status are at a big disadvantage. They have more financial problems, which creates stress, and they are more isolated and die younger.
Throughout the book, Carr documents the myriad ways the disparities, which begin at birth, reinforce each other as people grow up and grow old.
“Advantage begets further advantage, and disadvantage begets further disadvantage,” Carr concludes. For the less fortunate, “old age can be the worst of times,” she said. …Learn More
April 11, 2019
Our Financial Status: Race Really Matters
Racial differences in workers’ finances are nothing less than shocking: whites have roughly six times more wealth than Latinos and black-Americans and double the income.
These age-old disparities will be as familiar to readers as they are to economists. But a clear and updated picture of their magnitude was presented in a recent study.
In 2016, U.S. household wealth, regardless of race, still had not rebounded to 2007 levels. But whites made a lot more progress climbing out of the hole created by the plunging stock market and housing crash that ushered in the 2008 recession.
The researchers examined changes in each group’s net worth over a decade. Pre-recession, white households had five times more wealth than blacks; this ratio grew to 7-to-1 in 2016. The white-Latino wealth ratio doubled from 3-to-1 to nearly 6-to-1.
The 2016 data are the most recent from the Federal Reserve’s triennial survey of American households’ personal finances.
The earnings picture isn’t as dire but the gap is still large. White households are earning slightly more than they did in 2007, and blacks and Latinos are not. In 2016, white Americans had two times more income than either minority group.
Many factors, notably education, influence how well someone does. But, clearly, race does matter. …
January 22, 2019
A Taste of How the 1 Percent Lives
The dramatic increase in U.S. inequality is due almost entirely to the expanding fortunes of the
1 percent. They have tripled their share of the nation’s total wealth to 21 percent since the 1970s.
Such extreme concentrations of wealth are of growing concern to economists and even one Wall Street firm. They argue that it hurts the economy for everyone.
The public’s reaction couldn’t be more different. Their preferred solution to barely coping financially is to become rich themselves. Two out of three Americans told Gallup they aspire to being rich and say that the super-wealthy are good for the country. Democrats and Republicans are equally enamored of the rich.
What it means to be in the top 1 percent is, for most of us, an abstraction since the wealthy largely keep to their own. But the crew of the Double Sunshine tour boat are happy to show tourists the lifestyles of Florida’s rich and famous during daily tours of the dolphins and multimillion-dollar mansions on Naples Bay.
During my Christmastime tour of the bay, the crew pointed out one property where the new owner had demolished a $49 million house to build a new one. “Tear-downs are on a tear,” says The Naples Daily News, which closely follows the real estate transactions of celebrities and chief executives.
In property after property, royal palms sway over lawns that tumble into the bay. Every house has a yacht or an empty boat slip with a full crew awaiting the owner’s return, said Greg Dyer, the tour boat company’s assistant operations director. One homeowner pays nearly $600,000 a year in property taxes. No wonder Naples has such great bike paths. …Learn More
January 3, 2019
Here’s What Our Readers Liked in 2018
We’re kicking off 2019 with our periodic review of the most-read articles over the past year, based on the blog traffic tracked by Google Analytics.
Judging by the comments readers leave at the end of the blog posts, baby boomers are really diving into the nitty-gritty of preparing themselves mentally and financially for retirement. Financial advisers also frequently comment on Squared Away, and we hope some of our web traffic is because they’re sharing our blog with their clients.
Last year, Squared Away received recognition from other media. The Wall Street Journal recommended us to its readers for the blog’s “wonderful mix of topics.” The Los Angeles Times picked up our article, “Why Retirement Inequality is Rising.” MarketWatch published our posts about how pharmacists can help seniors reduce their prescription drug prices and about a Social Security reform to reduce elderly poverty.
The most popular blogs in 2018 fall into five categories:
The Big Picture
How Social Security Gets Fixed Matters
Future ‘Retirees’ Plan to Work
Just Half of Americans Enjoy Bull Market
Personality Influences Path to Retirement
How and When to Retire
Know About the 401(k) Surprise
How Retirees Can Negotiate Drug Prices
Work vs Save Options Quantified
What’s a Geriatric Care Manager Anyway?
Geriatric Help Eases Family Discord
Retirees Get a 401(k) Withdrawal Headache
Social Security Mistakes Can Be Costly …Learn More
November 1, 2018
US Inequality is Feeding on Itself
The fact that the richest Americans are grabbing such a big slice of the pie isn’t exactly breaking news.
What is news is that Wall Street is getting nervous about it. Moody’s Investors Service, a private watchdog for the federal government’s fiscal soundness, has concluded that inequality has reached the point that it threatens a system already being strained by increases in the federal debt. But Moody’s also noted that inequality is contributing to slower economic growth, which further aggravates inequality.
The high level of U.S. inequality today “sets us apart” from Canada, Australia, and several European countries, Moody’s said in an October report, “Widening Income Inequality Will Weigh on U.S. Credit Profile.”
Moody’s central concern is how inequality will affect the federal budget. When the economy slows in periods of high inequality, there are more lower-income households requiring support from costly programs like Medicaid. Federal tax revenues also decline during any downturn, leaving less money to pay for these means-tested programs and for social insurance programs like Social Security and Medicare.
The firm’s second concern is that inequality is a drag on the economy. When the middle-class is squeezed, for example, they have less money to buy consumer goods. And when the economy slows down, inequality can increase, as it did in the years after the 2008-2009 recession.
This has played out in a widening wealth gap, Moody’s said. The typical lower and middle-income worker’s net worth – assets minus liabilities – has shrunk since the recession, while net worth rose sharply for the people at the top.
One big reason for widening inequality is the stock market. Even though the market declined sharply this month, the post-recession bull market has beefed up investment portfolios – but only for the 50 percent of Americans who own company shares or stock mutual funds.
A second contribution to a widening wealth gap, post-recession, has been housing. A home is often the most valuable asset people own, so the steep drop in house prices and the spike in foreclosures were big setbacks for people who aspired to build wealth through homeownership. …Learn More