Wealth Accumulation At The Top Overshadows Near-Retirees’ Outlook

For the past almost 30 years wealth gains concentrated in the richest households, according to “The Wealth of Households: An Analysis of the 2016 Survey of Consumer Finance,” by economists David Rosnick and Dean Baker, released today by The Center for Economic and Policy Research (CEPR). The report incorporates the most recent 2016 Survey of Consumer Finance, the government’s best analysis of wealth, to offer a comprehensive panorama of household net wealth for the last 27 years.

Household wealth rose 95 percent over the last 27 years. In spite of losses during the Great Recession, it’s no surprise that the richest households reaped disproportionate amounts of this growth.

But for households in the middle of the wealth spectrum, home equity, severely damaged during the Great Recession, is an important contributor to wealth. The report puts a spotlight on the net wealth of near-retirees (ages 55-64) where home equity is a key factor in retirement security. For near-retiree households in the middle quintile, net wealth essentially flatlined from 1989 ($181,100) to 2016 ($195,600). This same group averaged a 58.5 percent equity stake in their homes compared to an 81.0 percent equity stake in 1989. “This implies that these households will be paying off a mortgage long into retirement if they stay in their homes,” writes Rosnick.

To better understand the wealth situation for retirees and near-retirees, this report introduces findings from a recent Census Bureau study which indicates that defined benefit pensions are considerably more important in sustaining income in retirement than previously thought.

Near-retirees should take notice of the shift away from defined benefit pensions to defined contribution plans, like 401-K plans. Rosnick concludes, “…today’s workers have little, if any, more wealth than their predecessors, indicating that defined contribution pension plans have failed to makeup for the loss of defined benefit pensions.”

But, it’s not all about those near the end of their working life. Just look at the 18-24 age bracket to see the dramatic increase in student loan debt in the bottom quintile, where the average student loan debt soared from $4,400 (1989) to $51,600 (2016). The average overall debt burden for that age group in the middle of the wealth spectrum more than doubled over the last 27 years. Chief among these debts are installment loans for education.

“Near-retirees are in the most precarious position within this economy where the bulk of the benefits are going to the rich. There is little prospect that their wealth situation will improve before retirement, they will be heavily dependent on Social Security, with little wealth besides their homes, and in most cases no other defined benefit pensions for support,” said co-author Dean Baker.