Posts Tagged "inequality"

The Racial Roots of Retirement Inequality

Financial advisers and retirement experts say the best advice they can give workers to prepare for old age is to save, save, save.

But two young researchers might argue this advice isn’t sensitive to the hurdles that Black and Hispanic workers face when they try to save. At a recent panel discussion, the researchers presented a laundry list of the hurdles, which are harder for minority workers to clear and can be insurmountable.

One disadvantage is widely understood: people of color tend to be in lower-paying jobs overall and disproportionately work in the retail or the food service industries, which have irregular hours, high turnover, and wages that often depend on tips. Many of these jobs do not include employee health and retirement benefits, putting people of color at greater risk than White workers that their retirement income will fall short.

Dania Francis

Dania Francis

But the roots of retirement inequality run deeper and can be seen in the racial differences in intergenerational wealth – whether homeownership or a college education that leads to a good job – said Dania Francis, an economist at the University of Massachusetts Boston and a panelist at the event hosted by the university’s Pension Action Center.

White Americans, Francis said, are in a better position to retire because they receive inheritances at dramatically higher rates than Black and Hispanic Americans. She cited Federal Reserve data from 2010 through 2019: 42 percent of White households within 10 years of retiring had already received or expected to receive an inheritance from their parents.

The inheritance numbers were 14 percent for Black and 11 percent for Hispanic households.

White parents also provide money to their young adult children at higher rates to pay for investments in their future such as college or a down payment on a house, Francis said. And, she added, the lower wages earned by workers of color will also make it harder for them to ever “bridge that gap.”

Taha Choukhmane, an assistant professor at the MIT Sloan School of Management, agreed. But he pointed to the billions of dollars in retirement incentives built into a tax code that also favors White workers and “contributes to inequality.” …Learn More

Research to Look at Work, Retiring by Race

The racial disparities embedded in our work, retirement, and government systems will be front and center at the annual meeting of a national research consortium.

One of the presentations at the online meeting on Aug. 4 and 5 will explore the impact of wealth and income inequality on Black and Latinx workers at a time these populations are rapidly aging. The researchers are concerned with how their decisions about when to retire will impact their economic security.

Growing inequality “point[s] to greater risks of financial insecurity” for future Black and Latinx retirees, the researchers said.

Another paper will address a related topic: the differences, by race and ethnicity, in workers’ levels of knowledge about how Social Security benefits work. Understanding the ins and outs of the federal retirement benefit – and specifically the advantages of delaying retirement to get a larger monthly check – are critical to improving living standards in old age.

Other research will explore an area that hasn’t been well studied: government programs used by non-parental caregivers such as Black grandparents or members of Latinx three-generation households to support the children in their care. The researchers will examine minority and low-income workers’ and retirees’ use of SNAP food stamps, child care subsidies, Temporary Assistance for Needy Families, and various benefit programs overseen by Social Security.

COVID is another topic on the agenda. One study compares the financial impact of the pandemic on early retirement for different income groups with the patterns in the aftermath of the Great Recession more than a decade ago. Another study examines how mortality rates might change in the wake of the pandemic.

Research on many other topics will also be featured, including health insurance, mothers, and longevity. The agenda and information about registration are posted online. Registration is free. …Learn More

The Many Facets of Retirement Inequality

Retirement inequality is a thread running through several articles that have appeared here this year.

One blog that was particularly popular with our readers distinguishes retirees who have enough wealth to maintain the same spending levels throughout retirement from those who will, over time, have to cut back and reduce their standard of living.

The research behind the article – “Health and Wealth Drive Retirees’ Spending” – makes clear that wealth is just one component of a satisfying lifestyle. Even retirees who can afford to maintain their living standard may not be healthy enough to enjoy their money to the fullest. The retirees who have both – health and wealth – are best equipped to maintain their pre-retirement lifestyle.

Homeownership also marks a dividing line between the haves and have-nots. A home is one of retirees’ largest sources of wealth. Although most are hesitant to withdraw home equity, the ones who have equity and tap it to pay medical bills see large, positive health benefits, according to “Using Home Equity Improves Retirees’ Health.”

Pensions are another dividing line. “Retirees with Pensions Slower to Spend 401(k)s” shows the value of having guaranteed income from defined benefit pensions, which are all but extinct outside the public sector. …Learn More

CARES check

COVID Relief Checks Helped Needy the Most

In the pandemic’s early days, the unraveling of economic life was breathtaking. Some 3.3 million Americans filed for jobless benefits in the second week of March 2020. A record 6.6 million joined them the following week.

By April, government checks were starting to land in workers’ bank accounts, bringing the urgent relief Congress intended. The unemployed used the often-substantial assistance – up to $3,400 for a family of four – to cover basic expenses, and the people who were holding on to their jobs saved for possibly difficult days ahead.

New research shows that the benefits of this assistance disproportionately went to those who needed it most: low-income workers and people who had financial problems before COVID hit.

The relief checks “have been more of a lifeline for individuals who were struggling,” the study concluded. “Rather than simply help prevent widening inequality,” the relief “may have helped close the gap.”

Consider the workers who either had great difficulty paying their debts in 2019 or had been spending more than they earned. Thanks to the first round of relief distributed in 2020, both groups saw improvement in three major areas, according to the Dornsife Center for Economic and Social Research at the University of Southern California.

The disadvantaged workers experienced the largest reductions in financial stress and felt more satisfied with their finances. They also felt less financially fragile, reporting that it was easier to come up with $400 in cash for an emergency like a car repair. And their ability to save increased.

The researchers said they couldn’t directly credit the relief checks for these improvements. Another important factor – the enhanced unemployment benefit of $600 per week – was also simultaneously at play. But one analysis in this study did find that the people who had received the checks saw more gains than the workers who were still waiting for their checks when they participated in the Internet survey in April 2020 that the researchers used.

As was widely acknowledged at the time, lower-paid hourly workers suffered the brunt of the pandemic-related layoffs. The researchers found that $60,000 in yearly income was a sort of dividing line: households that earned less benefited more from the government assistance than households that earned over $60,000. The lower-income households were more likely to build up their checking and savings account balances. …Learn More

Mental Health Crisis is an Inequality Problem

The connection between Americans’ socioeconomic status (SES) and their health was established long ago and the evidence keeps piling up.

"Healing: Our Path from Mental Illness to Mental Health" book coverLess-educated, lower-income workers suffer more medical conditions ranging from arthritis to obesity and diabetes. And the increase in life expectancy for less-educated 50-year-olds was, in most cases, roughly 40 percent of the gains for people with higher socioeconomic status between 2006 and 2018.

More recently researchers have connected SES and mental health. The foundations are laid in childhood. In one study, the children and teenagers of parents with more financial stresses – job losses, large debts, divorce, or serious illness – have worse mental health. And COVID has only aggravated the nation’s mental health crisis.

In a new book, Dr. Thomas Insel, former director of the National Institute of Mental Health, is concerned about the impact of inequality.

Mental health in disadvantaged communities “is worse because of the world outside of health care. It’s our housing crisis, our poverty crisis, our racial crisis, our increasing social disparities that weigh heaviest on those in need,” he writes in “Healing: Our Path from Mental Illness to Mental Health.” …Learn More

How to Help Low-Wage Workers Pay Bills

The Consumer Financial Protection Bureau (CFPB) will host a series of webinars next month for professionals and volunteers who regularly work with low-income clients and want guidance on how to help them with their finances.

People who serve this vulnerable population may want to help but don’t always feel comfortable giving advice. CFPB has assembled an online toolkit – a companion to the webinars – filled with simple, practical solutions and suggestions about how to get clients to open up about their finances or overcome the emotional obstacles to change. The agency also supplies professionals with thought-provoking questions for their clients about a range of financial issues.

“There are no right or wrong answers,” CFPB explains.

The webinars, scheduled for March, are open to everyone, including social service case workers, legal aid providers, housing counselors, tax preparers, non-profit volunteers, financial advisers, and local government officials.

The agency’s package of tips, tools and worksheets cover the basics that can make a big difference to families on a tight budget. A couple examples are a Spending Tracker to help them manage their expenses and a Comparing Auto Loans worksheet for car shopping.

Try these links for more information:

balancing balls

Social Security: Time for an Update?

The option to start Social Security benefits at any age from 62 to 70 – with an actuarial adjustment – is a key feature of the program. However, the adjustments – reductions in the monthly benefit for claiming early and increases for waiting – are decades old and do not reflect improvements in longevity or other important developments over time.

The option to claim early was introduced just over 60 years ago, when Congress set 62 as the program’s earliest eligibility age. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security amendments, which gradually increased the annual “delayed retirement credit” from 3 percent to 8 percent. Also in 1983, reductions for early claiming were changed in tandem with the gradual increase in the full retirement age from 65 to 67.

The goal of actuarial adjustments to the monthly benefits has always been to ensure that retirees with average life expectancy could expect to get the same total lifetime benefits, regardless of when they started. But calculating lifetime benefits requires assumptions about how long people will live and assumptions about interest rates. The current calculations are based on life expectancy and interest rates in the early 1960s or 1980s.

Much has changed since those dates: life expectancy has increased dramatically and interest rates have declined. Longer life expectancy and, to a lesser extent, lower interest rates would each call for a smaller penalty for early claiming and a smaller reward for delaying claiming.

Consider what this means for baby boomers whose full retirement age is 67. Under the current system, if they claim at 62, they receive 70 percent of their age-67 benefit. However, to reflect decades of increasing life spans and falling interest rates, the researchers calculated that the accurate monthly benefit would be 77.5 percent of the age-67 benefit. That is, early claimers are penalized too much.

For workers who delay claiming, a discrepancy also exists between the current and accurate delayed retirement credits, though the difference is smaller since the credit was initially too small. Specifically, workers who wait until 70 to start Social Security today receive 124 percent of the benefit they would’ve gotten at 67, whereas 120 percent of the age-67 benefit would be more accurate. …Learn More