the past decades, the gap between high- and low-income Americans has grown
substantially, and should those trends continue, a large swath of future
seniors could face a bleak retirement future.
Working for the Urban
Institute, a trio of researchers set out to examine the
long-term effects of the income gap on the future of U.S. retirement,
projecting earnings for various groups of earners through 2085. And depending
on where you happen to sit on the income ladder, things are about to become
either much better or much worse.
If the current
difference between the earning power of college-educated Americans and their
high-school-graduate counterparts continue, lifetime income for the lowest
fifth of people would drop 2% by 2045, 5% by 2065, and 9% by 2085.
impact would reverberate into retirement, because Social Security benefits are
tied to lifetime earnings, and how much people can save for retirement depends
on how much they earn,” the group — Damir Cosic, Richard W. Johnson, and Karen
E. Smith — wrote in the report, released at the end of last month.
instance, under those assumptions, the bottom fifth of seniors aged 67 to 75
would see a 3% decline in mean income by 2045, 6% in 2065, and 13% in 2085.
news is better for those in the top quintile, who would see overall lifetime
income rise by 2%, 5%, and 8% in those three years; accounting for just incomes
achieved between 67 and 75, those increases would work out to 3%, 5%, and 7%.
Urban team came up with multiple policy suggestions to help mitigate these
long-term trends, including raising the federal minimum wage from $7.25 per
hour to $12, but the researchers note that such a change would only help offset
and not completely eliminate the problem.
also warned that their findings relied solely on examining the so-called
“education gap” in earnings, and did not take into account other long-term
macroeconomic trends — such as fast-growing income for the top 1% of earners at
the expense of remaining workers.
our projections do not account for these increases at the very top of the wage
distribution, our estimates may understate the future growth in wage
inequality,” the team wrote.
the results were derived under the assumption that seniors would continue to
receive their full Social Security benefits for the duration of retirement. The
government, however, has projected that the program will only allow for full
benefits through the mid-2030s, with beneficiaries receiving only about
three-fourths of their earned Social Security income thereafter.
to Social Security could reshape the distribution of future retirement income,”
of upgrades to the social safety net and a higher minimum wage, the team
recommends that the government offer financial literacy classes for all
workers, while also requiring employers that do not offer pensions to
automatically place a portion of employees’ wages into retirement accounts.
these programs could provide all workers with a path to retirement security
even as wage inequality grows,” the authors concluded.