Posts Tagged ‘retirement’

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Social Security may have decreased the rate of poverty among retirees in the United States.* But it certainly hasn’t solved the problem of inequality.

As is clear from the chart above, from a recent report from the Organisation for Economic Co-operation and Development, old-age inequality among current retirees in the United States is higher than in all other OECD countries, except Chile and Mexico.

But wait, it’s probably going to get worse. That’s because, within each generation of workers, inequality has been rising. For example, researchers tracked U.S. income inequality for four different generations—people born in 1920, 1940, 1960, and 1980. For each group, inequality has been more extreme than the previous generation.

The inequalities among people of working age are a primary reason for inequalities among older Americans. That’s because, with highly unequal current incomes, only households at the top are able to accumulate adequate retirement savings. Everyone else is forced to have the freedom to rely on Social Security payments.

But that’s not the only reason for rising retirement inequality. Ill health is another critical source of difference. It can cause problems at work and trigger the loss of earnings, and of course work can also damage people’s health. As the authors of the report note,

Americans are far more unhealthy than their peers in a number of other countries and people from low socio-economic backgrounds are particularly affected by bad health.

And if ill health follows workers into old age or strikes them after retirement, they will need some kind of long-term care—but the social support for such care is much lower in the United States than in other countries.

Someone with median income receiving home care for moderate needs in the some US states may have as little as 6% of the cost of their care paid by the social protection system. This compares to about 45% in the Czech Republic and Israel and almost 100% in Sweden, Iceland and the Netherlands.

As the authors of the report observe, “ageing unequally starts early and builds up from childhood to old age.” This is no more so than in the United States where severe and growing inequalities in different dimensions—such as education, health, employment, earnings, and wealth—reinforce each and grow over the course of people’s lives.

What we’re seeing, then, is high levels of inequality among older Americans. And, given current trends, it’s only going to get worse for future generations.

 

*But the poverty rate among Americans older than 65 years is still high, at almost 20 percent, and the depth of poverty—the amount by which the average income of poor older people falls below the poverty line—is greater than 30 percent. And, just as worrisome, the poverty risk appears to be shifting from the old to the young. For example, while poverty rates for the elderly have fallen since the mid-1980s (by 2.5 percentage points for Americans 66 to 75 years), they’ve increased for younger workers (by 4 percentage points for those 18 to 25 years).

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Special mention

Clay Bennett editorial cartoon  Tom Toles Editorial Cartoon - tt_c_c170820.tif

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That’s what Mirella Casares gets as her “benefit” package from working at Victoria’s Secret. The package doesn’t include health or retirement contributions.

As it turns out, Casares is not alone. Far from it.

Many American workers, because of the precarious nature of their jobs and household finances, are concerned (as reflected in the word chart above) with “money,” “bills,” “health,” and “retirement income.”

According to the Report on the Economic Well-Being of U.S. Households in 2016 by the Board of Governors of the Federal Reserve System (pdf), about 30 percent—or approximately 73 million adults—are either finding it difficult to get by or are just getting by financially. Even more, almost half (44 percent) of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.

One of the major reasons is American workers simply aren’t being paid enough. That’s why more than half (53 percent) are forced to spend more than they earn and therefore don’t have the ability to save. They also face extraordinary health (approximately 24 million people, representing 10 percent of adults, are carrying debt from medical expenses that they had to pay out of pocket in the previous year) and education expenses (over half of adults under age 30 who attended college took on at least some debt while pursuing their education). Therefore, they have to borrow money and rely on family and friends to make ends meet.

The other reason is because of income volatility. About one third of American adults indicate that their monthly income varies either occasionally or quite a bit from month to month. Thirteen percent of adults (40 percent of those with volatile incomes) report that they struggled to pay their bills at least once as a result of income volatility. One of the major causes of that volatility is variable work schedules: seventeen percent of workers have a schedule that varies based on their employer’s needs, and just over half of those with a varying work schedule are usually assigned their schedule three days in advance or less.

One of the consequences of being underpaid and subjected to variable work schedules dictated their employers is American workers have found it necessary to turn to multiple jobs and informal work. According to the survey, 9 percent of all adults, and 15 percent of those who are employed, report that they worked at multiple jobs. In addition, 28 percent of all adults report that they or their family earned money through one or more of informal and occasional activities (such as babysitting, selling at flea markets, and performing tasks through online marketplaces) in the prior month.

The United States is now eight years into the recovery from the Great Recession and the benefit to American workers consists of little more than 3 bras and a bottle of perfume.

Save this!

Posted: 27 February 2017 in Uncategorized
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Setting aside enough of the surplus to support workers who have retired is one of the basic tasks any society faces.

Clearly, the United States is failing at that one simple task.

Yes, Americans do have Social Security. But, at an average monthly payment of $1,360 in 2017, it’s obviously not enough.

That’s why American workers are forced to have the freedom to come up with their own savings for retirement. And most are finding it difficult, if not impossible.

Overall, only one-third of American workers are saving anything in a workplace retirement account.

One reason is because, according to a recent study, only 2 out of 5 employees with access to 401(k)s and other defined-contribution retirement saving plans are actually using them. They simply aren’t being paid enough to buy what they need for themselves and their families and, at the same time, to put away money for retirement.

It’s no coincidence that the Census analysis found Americans with higher incomes were more likely to be socking money away for their old age. That dovetails with other data, such as the Federal Reserve’s annual survey on household finances, which found that almost 9 out of 10 Americans with more than $100,000 in annual income have a 401(k), compared with just four out of 10 earning less than $40,000.

The other reason is only 14 percent of companies actually offer these types of retirement plans, far lower than previous estimates.

The low percentage of employers that offer 401(k)s was especially noteworthy, [retirement specialist Arielle] O’Shea said, since previous estimates pegged the number at about 40 percent. “That is a significant problem,” she said.

Yes, indeed, that is a problem. Fourteen percent instead of 40 percent.*

The combined effect is that two-thirds of American workers are simply unable to save enough to fund their own retirements. They will have spent most of their lives working—and then they will struggle to stop working and enjoy their retirement.

Contrary to the advice of countless retirement specialists and politicians, who exhort American workers to tighten their belts and increase their savings, they’re not the ones who have failed. It’s a system that keeps workers’ pay in check and yet relies on their finding a way to accumulate individual savings—it’s that system that has failed American workers.

As I see it, the system that relies on individual decisions to save for retirement can’t be saved. Instead, it should be retired. And then replaced by the obvious alternative: transferring a portion of the growing surplus to workers when they retire. Such a system would be able to provide more generous benefits, starting at an earlier age—exactly what is need right now.

We can even give that system a name. Let’s call it Social Security 2.0.

 

*Now, it’s true, larger employers are more likely to offer 401(k)-style plans than smaller ones. So, 79 percent of Americans do in fact work at places that sponsor retirement plans. The problem is just 41 percent of those workers are making contributions to such a plan—more than 20 points lower than previous estimates.

Chart of the day

Posted: 4 January 2017 in Uncategorized
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The 401(k) revolution was good for employers but clearly not for workers.

By eliminating almost all defined-benefit plans, employers managed to shift most of the risk and costs of retirement plans to their workers.

What did workers get? Not a lot. Less than 60 percent of workers within ten years of retirement have any kind of retirement plan and their median retirement savings are only $104 thousand. Still, that’s more than the average household of the same age, which has managed to accumulate only $14.5 thousand in retirement savings.

It should come as no surprise, then, that both the early backers of 401(k) plans (like Herbert Whitehouse and Ted Benna) and pension experts who claimed workers would have enough to retire if they set aside just 3 percent of their paychecks in 401(k) plans (like Teresa Ghilarducci) are left to rue the day.

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According to a new report on the state of U.S. retirement by the Economic Policy Institute, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions.

Almost nine in 10 families in the top income fifth had savings in retirement accounts in 2013, compared with less than one in 10 families in the bottom quintile. This reflects a growing disparity in the new millennium as the share of families with retirement account savings declined significantly for all except the top income group.

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According to a new report on the state of U.S. retirement by the Economic Policy Institute, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions.

Nearly half of working-age families have nothing saved in retirement accounts, and the median working-age family had only $5,000 saved in 2013. Meanwhile, the 90th percentile family had $274,000, and the top 1 percent of families had $1,080,000 or more (not shown on chart). These huge disparities reflect a growing gap between haves and have-nots since the Great Recession as accounts with smaller balances have stagnated while larger ones rebounded.