Alliance of Retired Americans
FRIDAY ALERT
25 May 2018
The increasing wage gap between the average worker and top earners will manifest in new ways when people reach retirement. A new study by the Center for Retirement Research at Boston College found that, 56% and 54% of low- and middle-income families are unlikely to be able to maintain their pre-retirement standard of living once they reach retirement, the highest earners only face a 41% risk.
There are many reasons for the shortfalls but the growing gap between the wealthiest Americans and everyone else exacerbates the issues created by the increased use of defined contribution plans, such as 401(k)s, rather than defined benefit pension plans, which affects low income workers more. Income also tends to rise at a much slower rate for workers on the lower rungs of the economic ladder, and employers who hire for lower wage jobs tend to not even offer saving options.
The wage gap is part of a larger problem. While financial experts stress the importance of working longer and waiting to claim Social Security, but the incentives for low income workers are just not there. High earners have a longer life expectancy and the ability to work longer, allowing them to delay Social Security. In contrast lower wage workers have a shorter life expectancy and tend to work labor intensive jobs, giving them a reason to retire earlier and a much lower incentive to wait for their benefits.
“This new study quantifies what we already knew, that the wage gap only gets harder for people once they hit retirement,” said Robert Roach Jr., President of the Alliance. “We need policies that allow everyone to have a secure retirement after a lifetime of hard work. We need to defend defined benefit pensions and ensure that they remain a key part of the retirement equation.”
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