The income gap that endangers the retirement of millions of people


Monique Louvigny, an events coordinator in the San Francisco Bay Area, economizes where she can. She drives a 10-year-old Prius, she brings a thermos of coffee to work instead of frequenting a place with baristas, and she takes advantage of a self-service food pantry once a month.

Fired at age 57, “in a way I reinvented myself,” she said. She rebuilt her career as a freelancer, overseeing receptions and conventions for many companies and institutions, including the local Young and Legion of Honor art museums.

But his income fell to less than $30,000 last year. “It’s erratic,” he said. “In January I have 12 days of work.” In summer, you may only have three or four.

Louvigny, 64, feels lucky on two fronts. To obtain health insurance, she qualified for Medi-Cal, California’s Medicaid program. And two years ago, she paid off the mortgage on her condo in relatively affordable Vallejo. A housemate pays the rent, which helps cover maintenance costs and rising condo fees.

“I think I can last two years, work-wise,” he said, and then he plans to start receiving Social Security benefits when he turns 66, his full retirement age.

Louvigny’s income puts her in a category defined in a recent study in the journal Health Affairs as lower middle class for Americans approaching retirement. It is a group that has been steadily losing financial ground over the past two decades, with stagnant profits and fewer financial resources than it had in the early 1990s.

These losses not only portend an insecure retirement, but also have worrying implications for both health and life expectancy, the study and others have found.

The upper middle class, on the other hand, has fared clearly better.

“There’s a lot of focus on inequalities between the lowest and highest levels of the income distribution,” said Jack Chapel, the study’s lead author, an economist and doctoral candidate at the University of Southern California. “We wanted to look at the middle class, where people are struggling.”

Drawing on data from the National Health and Retirement Study between 1994 and 2018, researchers found “a bifurcation” among Americans in their 50s, he said.

In fact, they are now divided into two middle classes: the safer, upper tier (which, in 2018, averaged more than $90,000 per person in annual resources, including income and annualized home equity), savings for retirement and pensions); and the increasingly precarious lower middle class. In 2018, people in that group had average annual resources of less than $32,000.

In the early 1990s, by contrast, “our lower-middle-class group had fairly comparable results to the upper-middle class” on measures of health and economic well-being, Chapel said.

No more. In two dozen years, the gap between them widened. Homeownership, for example, decreased 5 percent in the upper middle class, but decreased 31 percent in the lower middle class, of which only 54 percent owned homes in 2018.

For those still working, income rose 27 percent in the upper middle class and fell 5 percent for lower middle class workers, adjusted for inflation. “They are earning less because they work fewer hours or at lower wages, or both,” Chapel said. They were also much less likely to have employer-sponsored health insurance.

Total projected lifetime financial resources after age 60 (including income, savings, pensions, housing wealth, and public benefits like Social Security) stagnated for lower-middle-class people, increasing just 2 percent in 24 years, to about $406,000.

But total resources reached about $975,000 for the upper middle class, an increase of 26 percent. (For the richest group, the comparable figure was almost $3 million.)

Teresa Ghilarducci, an economist at the New School for Social Research whose studies have found similar results among middle-income Americans, pointed to one reason for the growing disparity. “The house has become a reserve of debt,” she said. “Financial institutions have figured out how to extract wealth from homes through refinancing and second mortgages, and they have become more sophisticated.”

For most middle-income people approaching retirement, he said, the primary source of wealth is not home equity or retirement savings. They are Social Security benefits.

One particularly stressed subset: older workers in physically demanding jobs. A report by the Task Force on Retirement Security for Older Workers, convened by the National Academy of Social Security, recently estimated that at least 10 million workers over age 50 fall into that category.

Those jobs include “many service-related jobs that require you to be on your feet all day,” said Joel Eskovitz, a task force member and AARP policy director. “Retail people, home health aides, janitors. And a lot of jobs related to Amazon and other tech companies: warehouse work, deliveries.” Workers in these jobs are disproportionately black, Hispanic and Asian.

Because “these are not jobs you can keep well into your 60s,” Eskovitz said, such workers often claim their Social Security retirement benefits early, at age 62. Doing so leads to “a significant reduction in monthly benefits.” and lifetime income” compared to waiting until full retirement age, now 67 for most beneficiaries.

The gap between the two middle classes also manifests itself in health measures. Among the lower middle class, “there is almost no decline in smoking,” Chapel said. “But the upper middle class has reduced smoking by about half.”

People with lower incomes have more chronic health problems and are much more likely to describe their health as fair or poor. (One exception: Obesity has increased dramatically in both income groups.)

This also translates into differences in life expectancy. “Everyone is living longer, but the upper middle class is earning much more, and a greater proportion of the years they have left are quality years,” without serious health problems, Chapel said.

Between 1994 and 2018, life expectancy at age 60 increased twice as much for upper-middle-class men and women than for lower-middle-class men and women.

Even those whose slightly higher incomes put them technically in the upper middle class may feel insecure. “I just pray that I can keep my job at least until I turn 65,” Patricia Thompson, 62, wrote in a Facebook message.

She and her husband live in Hickory, North Carolina, where she earns $53,000 a year as an acquisitions editor for a small press and where her husband, 71 and retired, receives a $1,500 Social Security payment and withdraws $500 from his retirement savings every month. That’s above the 45th percentile of total household income for a married couple.

But they are still paying a mortgage and a car loan, and “I have no pension,” Thompson wrote. “I barely have any savings due to student loans late in my life. Where is the safety net for people like me?

“Figuring out how to ensure that different groups can live with dignity in retirement is really a huge policy challenge,” Eskovitz said.

At a time of discussion about raising the Social Security retirement age, policymakers and advocates have suggested a series of measures to bolster the financial stability of those earning the least and those who are prematurely pushed out of the workforce. labor force.

The Task Force on Retirement Security for Older Workers generated a long list of suggestions, including a “bridge benefit” for workers with physically arduous jobs, allowing them to receive partial Social Security payments early without locking them into reduced benefits for the remainder. of their lifes.

Increasing the limit on earnings subject to payroll taxes could improve the solvency of Social Security for everyone.

Chapel pointed to a new Department of Labor program called RETAIN, which helps sick or injured workers return to their jobs and includes workplace accommodations, rehabilitation and retraining.

Louvigny thinks she will be fine, as long as she can keep working for a few more years and is careful with her spending. “I try not to worry,” she said. “I don’t allow those thoughts.”

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