Wealth gap among retired Americans worsens despite a growing economy

(The opinions expressed here are those of the author, a columnist for Reuters.)

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 older Americans.

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 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 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 bit.ly/33Sqmtd does zero in on inequality and housing – and it is just as troubling as the NIRS research. 

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 that. 

“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.