New data suggests a unique and troubling trend in the spending and saving habits of Americans.
While the middle class is saving more than ever – with more wealth stored in retirement plans like 401(k)s and IRAs than ever before – lower-income Americans on the whole are doing the exact opposite.
Simply put, they’re not saving much at all, and that’s a problem for all Americans.
As Andrew Biggs of the American Enterprise Institute outlines in a recent analysis for Forbes, a new study released by a team of French economists tracked data on income trends over many decades. The findings showed that many Americans “may not have enough savings to last through longer retirement,” according to Biggs, which is a strong signal that a significant portion of the population may indeed face a “retirement crisis.”
Even as retirement savings for middle class Americans rose from a mere 33 percent of annual income in 1970 to 210 percent of annual income in 2014, lower-income Americans are seeing “substantially smaller” growth, according to Biggs.
“This leads to one possibility: that lower-income households see less need to save for retirement,” Biggs writes. “Social Security has always replaced a larger share of low-income households’ earnings than for the rich…. and while Social Security benefits aren’t generous, they’re not so low that it makes sense to give up more of your current consumption in order to save more for retirement.”
But this is an arrangement that will ultimately come back to haunt the nation, as more and more checks are being written without certainty that enough money will remain in perpetuity.
Biggs writes that this gap – between those in the middle class who are saving at historically high rates, and lower-income households not saving much at all – will only further widen, unless policy-makers look at the issue directly and formulate a plan.
“We need better information on all the retirement assets that Americans have built up if we want to understand why saving by low-income households doesn’t match rising retirement plans assets for the middle class,” Biggs concludes.
In other words, we must first understand how deep this problem goes before we’re ever able to solve it.
Head over to Forbes for the original piece.
Evan Smith is a Staff Writer for Opportunity Lives. You can follow him on Twitter @Evansmithreport.