No Rest for the Weary: Measuring the Changing Distribution of Retirement Wealth in the United States

ABSTRACT

Since 1992 wealth for the bottom 90 percent of households nearing retirement has fallen. The only source of wealth helping the bottom 90 percent is Social Security. Despite pro savings policies and generous tax breaks for savings, the share of the bottom 50 percent having any retirement account didn’t change in 20 years — 46 percent in 1992 and 47 percent in 2016. Even the middle class suffered; the share of the next 40 percent with retirement savings fell from 85 percent in 1992 to a low of 71 percent in 2016. Housing ownership increased a bit for the bottom 50 percent but fell among the middle class and upper middle class. Home equity for the working and middle class fell. Using SCF and HRS data over 20 years, we find the bulk of working-class wealth is government social insurance. Economists should not exclude social insurance from wealth calculations. We find social insurance is the most important source of wealth for most families. Government policies and institutions have failed wealth building for most American households with workers.

KEYWORDS:

• Household wealth
• retirement
• home ownership
• Distribution
• inequality
• racial inequality
• portfolio composition

JEL CODES:

• D14
• D32
• H55
• J14
• J15

Acknowledgements

We are grateful for the constructive feedback from the ROPE reviewers and editors, as well as comments by Jim Poterba, Anthony Webb, and our generous colleagues at the New School and Baruch College.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 “Also Riches joyned with liberality, is Power; because it procureth friends, and servants: Without liberality, not so; because in this case they defend not; but expose men to Envy, as a Prey” (Hobbes, 1651).

2 We are leaving out the ineffable category of human capital. Human capital is the skills and other assets that a person can sell in the labor market to garner a stream of income.

3 “Dynan, Skinner, and Zeldes (2004) find that a combination of precautionary and bequest motives results in higher saving rates for higher income households and has less effect on lower income households. But these transfers are mostly limited to the wealthiest households. Using data from two connected waves of Survey of Consumer Finances (SCF) Gale and Scholz (1994) find that between 1983 and 1985, 58.2 percent of financial supports higher than $3,000 were given by households in the top decile of wealth distribution, mostly to their children. Also, over 60 percent of inheritance recipients were in the top decile of wealth distribution. Given the extreme wealth inequality in the United States (see Figure 2), it is no surprise if these transfers could explain large shares of total wealth despite being limited mostly to the top decile of wealth distribution. But, regardless of the actual share of life-cycle savings in the total accumulated wealth, life-cycle wealth and inequality life-cycle wealth are the relevant” (Radpour 2020).

4 See Radpour (2020) for a disaggregation of wealth deciles. The analysis reveals considerable variation within group.

5 Social Security wealth has the unique property that it cannot be used as collateral and no agent but the federal government can garnish it. Home equity and sometimes 401(k) wealth are used as loan collateral for loans.

6 Mean real wealth increased by $35,292 over 34 years, but for the bottom 50 percent mean wealth fell (see Appendix Table A1 HRS Means).

7 Testimony from the Advisory Committee (e.g., Ariel Capital) notes the academic research comes to the same conclusion that 401(k) requires professional advice or else they do wrong things like go to brokerage accounts. Managing your own funds is like doing your own plumbing.

8 Last our wealth categories match fairly well: housing equity, defined contribution wealth, and non-mortgage debt, primary residence net of mortgage debt, retirement savings, and non real estate debt respectively; non-retirement financial assets and other assets seem to match to aggregations of our remaining asset categories. Defined benefit wealth is also included in the CBO’s definition of retirement wealth which is similar to our methodology in using the HRS.

Additional information

Funding

This work was supported by the James Family Charitable Foundation as a part of the Rethinking Wealth Project.