Why Retirement Inequality is Rising

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Just as the wealth and income gap between the well-to-do and working people is growing, so, too is retirement inequality.

tableResearchers increasingly want to know what’s behind this phenomenon. They’ve uncovered reasons ranging from low-income workers’ greater difficulty saving to the well-to-do’s longer life spans – which means they’ll get more out of their Social Security benefits.

Having a low income doesn’t necessarily mean a retiree can’t live comfortably. What matters is how much of their earnings they will be able to replace with Social Security and any savings.

Even by this standard, lower-income workers come up short: 56 percent are at risk of having a lower standard of living when they retire. The decline is slightly less for middle-income workers – 54 percent – but the risks fall sharply, to 41 percent, for the people at the top.

The roots of this inequality span Americans’ lives from cradle to grave:

  • In our 401(k) system, financial security in retirement increasingly hinges on how much people can save in their 401(k)s as they work. But it’s harder for low-income workers to save, mainly because their employers are less likely to offer a savings plan, according to a 2017 study by The New School for Social Research. The study also found that basic living expenses gobble up more of their paychecks, and they experience more financial disruptions from layoffs and divorce, leaving less for savings.
  • Some research assesses inequality trends for specific groups of people.  Incomes tend to rise over time, even after being adjusted for inflation, but they rise more slowly for people near the bottom of the earnings scale. Lower earnings translate later to lower retirement incomes.  For example, the future retirement income of well-heeled members of Generation X, relative to today’s retirees in the high-income bracket, is estimated to be two times more than it will be for low-income Gen-X retirees, according to an Urban Institute study.
  • A trend in this country is toward later and later retirements as older workers try to beef up their future finances.  The exception, however, is one group with much to gain from a larger monthly Social Security check: men with just a high school education, according to a forthcoming report by the Center for Retirement Research (CRR).

    Among the incentives to retire later is the decline in reliable income coming from traditional pensions in the private sector, which are dwindling. But this powerful incentive gives less encouragement to less-educated workers, because their employers were less likely, even decades ago, to provide pension coverage, a situation that persists today. Also limiting their ability to work longer: the health of men with lower education levels, who often have physically demanding jobs, hasn’t improved as much as the overall population’s.
  • A 2017 CRR study finds that many older workers will find a new job or career so they can add a few years to their work histories, delaying Social Security and saving more. But this strategy is less effective for people in lower socioeconomic ranks, because when they do make a move, they tend not to work as long as workers at the top.
  • Another study focuses on a big disadvantage for African-American retirees. Owning a home can boost retirement finances – a retiree might be able to pay off the mortgage, eliminating their biggest expense, or sell the family home and move someplace cheaper. But African-Americans’ homeownership rate has been declining since the Great Recession, reducing their retirement resources, the Urban Institute found.
  • Delaying Social Security is critical to retirement security, because the resulting larger monthly checks continue for as long as they’re alive. But one well-known study found that low-income workers’ life spans aren’t increasing as rapidly as people at the top of the earnings scale. Because of this slower growth, another study finds, those with lower life expectancies have less of an incentive to delay claiming their benefits.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.


Whatever happened to get an education, get a job, get married and then have children. It is difficult for average people to get ahead without two incomes and even more difficult for them to attain home ownership. Income inequality, and subsequently retirement inequality, will always exist as long as there are single parent households. It’s not a question of morality, but one of economics and sociology.

An education does not have to entail a college degree. So many would be better off learning a trade and not being burdened with student loans. A good example is the young woman in the previous blog who honed her skills as a carpenter to attain her goals. Even those with only a high school education can succeed by following the tried and true traditions, because they still work.

As to delaying Social Security, a lot of people take it early because, aside from those who truly can’t afford to delay, Social Security Claims Specialists ever so gently twist your arm to take it early. They used to give the “break even” spiel and people were persuaded. Note that this approach is being clamped down on.


Another problem for the younger generations is that they are graduating (or not able to finish) college, with really incredible amounts of debt.

This makes it difficult for them to get started, buying a home, raising a family, and putting away money for retirement.

There aren’t many jobs with defined benefit pensions anymore, and new workers are lucky to find a job that isn’t part-time, temporary or contract work.

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