Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The report from the Government Accountability Office highlights a concerning trend in retirement savings, showing that the gap between affluent and less affluent households has widened over the years.
The median retirement account balance for high-income households in 2019 was $605,000 compared to $64,300 for middle-income households, a difference of nine times. Since 2007, when the difference was four times greater, there has been a dramatic increase in this discrepancy.
Although the ratio of high- to low-income households’ median balances stayed largely stable, it nevertheless illustrates a considerable disparity in retirement savings according to income levels.
Race and income are critical factors contributing to these disparities. White households tend to have higher median balances compared to other racial groups. This indicates racial wealth inequality and raises concerns about access to resources and opportunities that affect retirement savings.
The report highlights that high-income households have an advantage in retirement savings due to their ability to contribute more to their retirement accounts. They also have greater access to retirement savings plans and benefit from tax perks, which further widens the gap.
Moreover, several other factors also play a role in the retirement savings disparity. Job tenure, education level, the presence of children, asset allocation, withdrawals, divorce, and unemployment all impact the amount of money individuals can save for retirement. Low-income households often face challenges with job stability and education, which can hinder their ability to accumulate significant retirement savings.
Read Next: HSBC’s Profits Soar, Investors Rejoice: $2 Billion Share Buyback Plan Revealed
Wealthy Investors’ Use of Retirement Accounts Raises Tax Concerns and Widens the Gap
Lawmakers are concerned about the use of retirement accounts by wealthy investors to avoid paying taxes.
This practice may contribute to the concentration of wealth among the affluent and exacerbate the retirement wealth gap.
Experts stress that while individuals can take small steps to build retirement wealth, significant policy changes and reforms are necessary to address the root causes of the disparity. Suggestions include implementing higher Social Security benefits for those with lower incomes and establishing universal workplace savings plans to ensure that all workers have access to retirement savings options.
The report highlights the widening gap in retirement savings between affluent and less affluent households, which is primarily influenced by income and race.
While some individual efforts can help, addressing this issue effectively requires systemic changes and policy reforms to promote greater financial security for all individuals in their retirement years.
Read Next: The Millennial Subsidy: How Silicon Valley Impacts Our Financial Future
Source: CNBC
