Wealth gap among retired Americans worsens despite a
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[October 31, 2019] (The
opinions expressed here are those of the author, a columnist for
By Mark Miller
CHICAGO (Reuters) - The current record-high
level of income inequality in the United States affects all segments of
society, but two new reports shed light on how the trend is impacting
The disturbing finding of both studies: inequality has reached shocking
levels among today’s older adults - and the gap will be much wider for
young people when they reach retirement age.
The U.S. economy has been growing for 10 straight years, and median
incomes are rising. But income inequality is at a 50-year high,
according to a report released by the U.S. Census Bureau last month. A
widely used measure of inequality - the Gini coefficient https://bit.ly/1mVicdp
- shows the United States has the highest level of inequality among the
largest industrial nations.
The two new research reports look at the gap in ownership of financial
assets, and in the housing market. Both show that among retirement-age
Americans, ownership of assets is rising among the wealthiest 20% of
households, with everyone else treading water or losing ground. And the
wealth gap is worsening among today’s younger generations, who will not
reach retirement age for some time.
One of the reports, by the National Institute on Retirement Security
https://bit.ly/2oXrCfV (NIRS), examined wealth as defined by nontangible
assets such as savings accounts, stocks and bonds. Using data on U.S.
household finance from the Federal Reserve’s Survey of Consumer Finances
(SCF), the researchers found that the share of these nontangible assets
held by baby boomers has shifted dramatically toward the wealthy.
Specifically, the financial assets owned by the wealthiest 5% of baby
boomers grew from 52% in 2004 to 60% in 2016. Over the same period, the
share of financial assets owned by the top 10% of baby boomer households
grew to 75% from 68%, and the share owned by the top 25% grew to 91%
from 86%. Meanwhile, the share of assets owned by the bottom 50% of
boomer households shrank from 3% in 2004 to under 2% in 2016.
Financial asset inequality appears to be growing worse across
generations. Generation X and Millennials appear to have reached
comparable degrees of financial asset concentration among the wealthiest
households as baby boomers - but at younger ages. This implies that the
wealth gap for these younger groups will only worsen over time - as
financial assets rise at compounded rates for wealthy households while
the less affluent stay flat.
“The trend is really disturbing,” said Nari Rhee, director of the
retirement security program at the UC Berkeley Center for Labor Research
and Education, and co-author of the report. “Millennials have attained a
level of financial asset inequality very similar to boomers but a full
20 years earlier. This will only worsen over time.”
HOME OWNERSHIP GAP WIDENS
The NIRS study is limited in that it excludes income from pensions and
Social Security - and it also does not include home equity. Housing is
an especially important part of the wealth picture for older adults. It
is not a liquid asset that can be tapped easily for income, but most
older adults own their own homes, and home equity is the most
significant asset for many older households.
But another new study https://bit.ly/33Sqmtd does zero in on inequality
and housing - and it is just as troubling as the NIRS research.
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The Joint Center for Housing Studies of Harvard University (JCHS) found that
home ownership rates have slipped since the Great Recession. Among households
aged 50–64, the homeowner rate was 74.2% in 2018. That was 6.2 percentage points
lower than in 2004 and nearly 5 percentage points lower than in the 1990s
average. Households in this age group are thus approaching retirement with lower
home ownership rates than those of the previous generation. This is a worrisome
trend because home owners enjoy greater housing security and more predictable
housing costs than do renters. Owners can also reduce their costs substantially
by paying off their mortgages.
Moreover, the racial gap in home ownership is widening - the gap in home
ownership between white and black households over age 65 stood at a 30-year high
of 19.4% in 2018, and at 18.4% for Hispanics compared with whites.
JCHS also found that a growing share of older households is carrying housing and
other types of debt into old age. In 2016, 46% of homeowners aged 65-79 had
outstanding mortgages, home equity loans or lines of credit, up from 24% three
decades ago. Among homeowners age 80 or older, the figure soared from 3% to 26%.
Black and Hispanic homeowners are more likely to carry
mortgage debt than older whites.
Most disturbing, the number of cost-burdened households aged 65 and over - those
paying more than 30% of income for housing - grew by more than 200,000 to a new
high of nearly 10 million. Roughly 5 million of these households were severely
burdened, paying over half their incomes for housing.
“The incomes of low-income renters are not keeping pace with the increases in
rental rates that we’re seeing,” said Jen Molinsky, a senior research associate
at JCHS. “So if you’re in your eighties and your income is falling and your rent
is going up, you’re much more likely to become cost-burdened.”
Remember those numbers next time you read an op-ed piece arguing that the
retirement outlook is rosier than portrayed in the media. These less-fortunate
households will be able to retire on Social Security alone, the argument here
goes. Well, the average annual Social Security retirement benefit this year is
$17,500, with a big cost-of-living increase of 1.6% for 2020? Try living on
“We're seeing trends toward wider disparities in income, bigger gaps in home
ownership among different demographic groups and also seeing wider disparities
in wealth, and the presence of debt,” said Molinsky. “Going forward, more older
adults will have difficulty accessing housing that's affordable, but also
physically safe, accessible and well-connected to services.”
Solutions to the problem are far from clear. NIRS notes that financial asset
inequality is exacerbated by regressive tax incentives for retirement savings
and unequal access to employer-provided retirement plans.
The study recommends several policy solutions, including strengthening and
expanding Social Security, making workplace retirement saving plans more widely
available and improving the federal Saver's Credit for low-income taxpayers.
Good ideas all, and worth pursuing. But we also will need a policy approach to
the broader U.S. income inequality problem. Solve that, and the retirement
problem gets better on its own.
(Reporting and writing by Mark Miller in Chicago; Editing by Matthew Lewis)
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