In a September 10, 2014, Market Watch website article titled “In retirement savings, the poor get poorer” a new report from the Federal Reserve is discussed. The average retirement account savings rose 10% from $183,400 to $201,300 from 2010 through 2013. Retirement Account includes IRAs, 401(k)s, 403(b)s and Keogh plans. It excludes general savings.
As you delve further into the numbers you learn much more. Median balance rose 25%, from $47,200 to $59,000. However, as you may know, the median means that half the people with retirement accounts have balances of $59,000 or less. That is quite telling about how skewed the actual savings are. Furthermore, the study looked at families whose “head is between ages 35 and 64”—a group whose members are generally “established in their careers” but are “too young for full retirement.”
Basically half the people who need to be saving the most have $59,000 or less according to the Federal Reserve. The rise in balances reflected “a combination of resurgent stock markets and increased contributions by those who participated in retirement plans,” the report said. (U.S. stocks rose considerably faster than savings balances over that same period—the S&P 500, for example, rose 47% between the end of 2010 and the end of 2013.)
The report is even direr in that ownership of retirement accounts fell below the 50% mark in 2013, continuing “a downward trend also observed in the 2007 and 2010 surveys,” the Fed notes. The declines in participation were most serious among those in the bottom half of the income distribution. Among those families, participation rates fell from 48.2% in 2007 to 40.2% today, according to the Fed report.
Families with “upper middle” incomes– that fall between 50% and 90% on the distribution scale– saw participation rates decline slightly, from approximately 83% in 2007 to about 80% in 2013. The top 10%, meanwhile, raised their participation rates, from 94.1% in 2007 to 94.6% in 2013.
Basically, the emphasis of direct payments and tax credits to lower income people did not free up enough cash to allow them to save for retirement. A new plan may be needed that gives people below a certain taxable income a credit for saving for retirement. Of course, with the current situation in Washington, this idea has not even been proposed.
Account balances followed the same trajectory for the bottom half, which had $39,100, on average, in their IRAs and 401(k)s in 2013, down from $50,600 in 2007.
In contrast, balances for those in the “upper-middle” group—with incomes that fall between the 50% and 90% marks –rose 16%, from $125,600 to $147,300. But the top 10% fared less well, with an average retirement account balance of $446,000, down 8% from $485,000 in 2007. Moreover, “the fraction of families in the top 10% of the income distribution with retirement account balances exceeding $1 million fell from 14% in 2010 to 9% in 2013,” says the report. We suspect that the reason is good tax planning for that group but the Federal Reserve does not offer an explanation and did not study the reason.
We believe better education in financial planning to the public would help improve the findings from this report.
The retirement-savings report is based on the Fed’s 2013 Survey of Consumer Finances, which is published once every three years and collects information from approximately 6,000 households about incomes, net worth, debt and credit use.
Below is the source:
Market watch website
In retirement savings, the poor get poorer
September 10, 2014, 11:09 AM ET
According to a new report from the Federal Reserve, the average balance in Americans’ retirement accounts—a category that includes Individual Retirement Accounts (IRAs) as well as 401(k)s, 403(b)s and Keogh plans—rose 10% over the past three years, from $183,400 in 2010 to $201,300 in 2013. The median balance, meanwhile, was up 25%, from $47,200 to $59,000. The report looked at families whose “head is between ages 35 and 64”—a group whose members are generally “established in their careers” but are “too young for full retirement.”
The rise in balances reflected “a combination of resurgent stock markets and increased contributions by those who participated in retirement plans,” the report said. (U.S. stocks rose considerably faster than savings balances over that same period—the S&P 500, for example, rose 47% between the end of 2010 and the end of 2013.)
The retirement story isn’t all rosy. Ownership of retirement accounts fell below the 50% mark in 2013, continuing “a downward trend also observed in the 2007 and 2010 surveys,” the Fed notes. This issue illustrates why the Obama administration has been encouraging employers to offer new, simplified retirement savings accounts to employees who lack access to them at work.
The declines in participation were most serious among those in the bottom half of the income distribution. Among those families, participation rates fell from 48.2% in 2007 to 40.2% today, according to the Fed report.
Families with “upper middle” incomes– that fall between 50% and 90% on the distribution scale– saw participation rates decline slightly, from approximately 83% in 2007 to about 80% in 2013.
The top 10%, meanwhile, raised their participation rates, from 94.1% in 2007 to 94.6% in 2013.
Account balances followed the same trajectory for the bottom half, which had $39,100, on average, in their IRAs and 401(k)s in 2013, down from $50,600 in 2007.
In contrast, balances for those in the “upper-middle” group—with incomes that fall between the 50% and 90% marks –rose 16%, from $125,600 to $147,300. But the top 10% fared less well, with an average retirement account balance of $446,000, down 8% from $485,000 in 2007. Moreover, “the fraction of families in the top 10% of the income distribution with retirement account balances exceeding $1 million fell from 14% in 2010 to 9% in 2013,” says the report.
The report doesn’t explain why top earners’ balances shrank.
The retirement-savings report is based on the Fed’s 2013 Survey of Consumer Finances, which is published once every three years and collects information from approximately 6,000 households about incomes, net worth, debt and credit use.
In retirement savings the poor get poorer
