The Growing Financial Risk of Retired Americans

Retirement is supposed to be the time of carefree living; the reward for a lifetime of hard work, saving, and sacrifice. But it seems that may be more utopian pipe dream than reality. The wealth gap in the United States is getting wider, which in turn increases the financial risk of many retired Americans, limiting their options and forcing them to make tough decisions.

There is more income inequality among older adults than at any time in history, making many Seniors financially vulnerable. Despite consistent economic growth, albeit slow—in the 2% range—and a stock market that continues to hit new highs, the wealth effect of investing escapes many, because a majority of American workers are not saving for retirement.

A couple of new reports indicate that the largest areas of wealth disparity between higher and lower-earning households is the median value of retirement accounts and the amount of home equity.

After looking at the financial assets of retired Americans—specifically savings accounts, stocks and bonds—the National Institute on Retirement Security (NIRS) found that baby boomers’ share of financial assets has shifted toward the wealthy.

Financial Assets owned by the wealthiest 5 percent of baby boomer households:

2004-52%

2016-60%

Financial assets owned by the wealthiest 10 percent of baby boomer households:

2004-68%

2016-75%

Financial assets owned by the wealthiest 25% of baby boomer households:

2004-86%

2016-91%

Financial assets owned by the bottom 50% of baby boomer households:

2004-3%

2016-2%

Homeownership is another factor in determining wealth disparity among adults since home equity is one of the biggest financial assets for many older Americans. A report by the Joint Center for Housing Studies of Harvard University (JCHS) found a decrease in homeownership since the Great Recession among adults 50 to 64:

2004-80.4%

2018-74.2%

Less homeownership means fewer people eligible for reverse mortgages, which could provide needed funds to older Americans who find it harder to make ends meet.

The uneven distribution of wealth coupled with the low retirement savings rate among most American households could be a threat to the plans of workers nearing retirement, causing them to adjust their timeline and stay in the workforce longer. The National Institute on Retirement Security (NIRS) says 59% of working Americans don’t 401(k) accounts or Individual Retirement Accounts (IRA).

NIRS research suggested public policy changes to help improve retirement security for working Americans, such as increasing Social Security revenues to help give more benefits for those earning lower wages. Those suggestions may well fall on deaf ears.

For the better part of 20 years annual Social Security statements have included this warning: By 2038 the (Social Security) trust funds will be exhausted and the payroll taxes collected will be enough to pay only about 73 percent of benefits owed. In spite of the warning, Congress has taken no action. And according to the Wharton Business School at the University of Pennsylvania, Social Security coffers will be dry and dusty in 2032 with a cash-flow shortfall 36% larger than the Trustees estimate. By 2048 the cash-flow shortfall will be 77% more.

The problem compounds since 50% of retired couples and 70% of unmarried elderly receive 50% of their income from Social Security. Among all Social Security beneficiaries, 21% of married couples and 45% of unmarried persons rely on Social Security for 90% of their income. Those are the statistics from the Social Security Administration (SSA).

Add in annual Social Security cost-of-living (COLA) increases of 1.6% or less and the disparity grows.

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