January 5, 2023

As the lower-paid sex, women have no shortage of insecurities about their retirement finances.

Only one in five working women feels “very confident” of being able to retire comfortably, the Transamerica Center for Retirement Studies reports in its annual retirement survey. More than half say they don’t earn enough or have too much debt to leave a lot of room for saving. Four in 10 expect to retire after 70 or not at all.

These insecurities probably reflect, to some extent, the poor retirement preparedness of Americans as a whole, not just women. In fact, women have made significant strides over the past half century. A new study documenting their personal and economic progress since the 1970s finds that their financial standing, compared with men, has improved.

Granted, women are still a long way from pay parity. But the improvements in retirement preparedness are impressive because they occurred despite the fact that women have become more independent – they are more likely to be living on their own and supporting themselves. Roughly two-thirds of boomer women born after 1953 either have never married or have been divorced for some part of their adult lives, according to the Center for Retirement Research.

What undergirds their personal and financial independence are college degrees and women’s growing participation in the labor force over five decades.

One in three baby boomer women born in the mid-1950s through the mid-1960s has a college degree – twice that of their mothers who were born during the Great Depression. Armed with the degrees, young boomer women flooded into the labor force. Three-fourths were working between their mid-30s and mid-40s, compared with 57 percent employment in the Depression-era cohort at that age. Men’s labor force participation has been much higher historically but barely changes over time.

Black women have always worked more than White women. But they too increased their labor force participation as they gained more education.

So how has women’s robust participation in the work world bolstered their financial security? …Learn More

On the Web

June 30, 2022

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

Behavior

April 28, 2022

Previous research has shown that spending drops immediately at the moment the paychecks stop, and a few studies have found that households, once retired, reduce their consumption over time.

But a new study that also takes the long view suggests that the spending decline is not what retirees want to do but what is necessitated by their financial and health constraints.

The analysis, which used data from two national consumption surveys, divided retired households into groups to get a sense of what goes into their spending decisions. The researchers compared the consumption patterns of retirees at three different wealth levels over a 20-year period and then compared consumption for three states of health.

The evidence that financial resources drive behavior is that the wealthier households’ consumption was relatively constant, declining just one-third of 1 percent a year.

While these retirees have the financial wherewithal to largely maintain their spending, retirees in the bottom wealth tier saw bigger drops of 1 percent a year. When accumulated over 20 years, the declines produced much lower spending levels than when they first retired.

Health is a second factor in retirees’ decisions. Again, the extremes tell the story. Spending in the top tier – very good or excellent health – held fairly flat, while the retirees in fair or poor health saw relatively large declines. Even if they can afford to travel or eat out frequently, health problems may be preventing them from enjoying their money. …Learn More

October 28, 2021

The bulk of care for the nation’s elderly is informally provided by spouses, adult children, and other family members. But if family can’t fill the need, will retirees be able to hire an in-home caregiver or pay for a nursing home in the future?

Just one in five 65-year-olds has enough family and financial resources combined to provide the support they would require in the event they develop the most severe care needs as they age, according to new research by the Center for Retirement Research. At the other extreme, more than one in three will have insufficient resources to cover even a minimal amount of care.

The study builds on previous report showing that most retirees will eventually need some care, though only one in four is predicted to have severe needs. And one in five will not need any care. The new study used data from a national survey of older Americans to determine how many total hours of care are required for three different levels of need – minimal, moderate and severe.

For example, 924 hours of family or professional care per year are used by the typical person who gets minimal assistance, such as housekeeping or cooking for a few weeks or months. But people with severe needs receive nearly 2,300 hours of care per year – with half supplied by family members. This would add up to more than 11,000 hours over a five-year period, which is the length of time the researchers used to define severe care needs.

Next, the researchers calculated how many hours of care could be covered informally by family and how many hours of formal care the retirees could purchase with their income and any financial assets. If the total hours of care they can cover with their resources fall short of what is required for a given level of need, then retirees have insufficient resources to meet that need.

Unmarried women are in the toughest position, because they lack not only a spouse to take care of them in old age but also the financial advantages enjoyed by married couples, who tend to be wealthier than single people. Over half of unmarried women will not be able to cover even minimal care needs. In contrast, only a third of couples could not provide for any future care.

There are also big disparities by race: nearly half of older Black Americans and two-thirds of Hispanics do not have the family and financial resources to provide at least minimal care, compared with only a third of whites. …Learn More

June 22, 2021

We celebrate the stories of hard-working immigrants who achieve the American Dream. But their success in the real world largely depends on their residency status.

Undocumented farm workers are the most precarious. Living in the shadows makes it difficult to break out of low-wage jobs and move into more lucrative work. The Dreamers who came here as children are also undocumented. Some have been granted temporary protected status by the federal government, but they’re not eligible for federal student aid, and companies are often reluctant to hire them, even though the law permits it.

UCLA researcher Josefina Flores Morales uses U.S. Census data to investigate the connection between immigration status and socioeconomic status. She confirms what most people would expect – that net worth rises as an immigrant’s residency status becomes more stable.

Consider Latinx households. Dreamers and other undocumented workers have an average $38,000 in net worth. Latinx immigrants who carry green cards allowing them to live and work permanently in the United States have much more – about $66,000 in wealth. The foreign-born people who became citizens have $79,000, and citizens of Latinx descent who were born in this country have more than $92,000.

One reason undocumented immigrants’ wealth is much lower is that they tend to be younger than the immigrants with residency status or citizenship. But the differences in Latinx wealth, depending on immigrant status, persist even after age 50.

Non-Hispanic white households follow a similar pattern – net worth rises as citizenship becomes more secure. Undocumented white immigrants have about $59,000 on average. That’s a fraction of the wealth held by the richest whites, who were born here.

The chips fall somewhat differently in the Asian and Black communities. The immigrants who’ve gained citizenship have higher wealth levels than even the Asian-Americans and Black Americans born here, both of whom have a history of being subject to discrimination and slavery. But these groups are smaller than the Latinx and white communities. …Learn More

Money Culture

May 20, 2021

It’s still too early to assess the full impact of the COVID-19 downturn on Millennials’ economic fortunes. But Black Millennials had already lost a lot of ground before the pandemic hit their communities hard.

Their wealth in 2019 was just half of what would be expected based on how much wealth their parents’ generation had at the same age.

Other Millennials are also running behind previous generations, but only slightly. And their situations have improved in recent years, while Black Millennials are sliding farther and farther behind.

The Federal Reserve Bank of St. Louis called the situation “alarming” in its new report.

The oldest Millennials are turning 41 this year. But in 2019, the typical Black family born in the 1980s had only $5,000 in their savings accounts, 401(k)s, home equity and other wealth – compared with the roughly $11,000 they would be expected to have based on the previous generation. Hispanic Millennials had $22,000, and whites had $88,000.

Black Millennials are struggling for a few different reasons, said Ana Hernández Kent, a senior researcher for the St. Louis Fed’s Institute for Economic Equity. Homeownership is a major source of wealth for most Americans, but only a third of them own homes – half the rate of their white peers.

Student debt is another big issue, because African-Americans who borrowed money for college either didn’t graduate or used the loans to attend lower-quality for-profit colleges at disproportionate rates. Their college experiences haven’t always translated to earnings that are high enough to justify the debt taken on to pay for an education.

“They’re over-leveraged,” Kent said. “Just over a third of Black Millennials with at least a two-year degree are more likely to say the costs of college are larger than the benefits.” …Learn More

Money Culture

February 11, 2021

In the COVID-19 downturn, this blog has had a steady supply of stories and statistics about the damage being done to low-income and middle-class families.

That’s one perspective on the pandemic. The growing billionaire class is another one.

Since last March, the nation’s 660 billionaires have added more than $1 trillion to their wealth – a 39 percent increase. Their combined net worth is now $4 trillion, which is nearly double the $2 trillion held by the 165 million Americans in the bottom half, according to the Institute for Policy Studies’ new report.

“It’s a troubling sign that too much of society’s wealth and income is flowing upwards to that small group of people,” Chuck Collins of the Institute for Policy Studies said during an interview on NPR’s Fresh Air.

The institute’s report is based on Forbes magazine’s annual estimates of the net worth of the world’s richest people.

Inequality has always been with us, but economists say it has grown as billionaires’ wealth has hit stratospheric levels.

To be sure, inequality would’ve been worse without the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $500 billion in direct assistance to families last spring prevented a surge in poverty, and the relief bill passed in late December is sending more aid to unemployed and under-employed people who need it.

The billionaires are getting richer for a couple reasons, starting with a surprisingly strong stock market in 2020. Despite the worst public health crisis in a century and a struggling economy, the Standard & Poor’s 500 stock index shot up 18 percent.

But some billionaires were also in the right place at the right time – a pandemic. …Learn More