[wta-talk] Economic futures: Stock market no panacea

[Eugen Leitl]

---------- Forwarded message ----------
Date: Thu, 2 May 2002 12:40:00 -0400
From: "Hughes, James" <jhughes@changesurfer.com>
Reply-To: wta-talk@yahoogroups.com
To: "Wta-Talk (E-mail)" <wta-talk@yahoogroups.com>
Subject: [wta-talk] Economic futures: Stock market no panacea


New report out.  Full report can be downloaded
at http://epinet.org without charge.  Also look for the one
we had a week ago on income inequality.  -- mbs


Middle Americans' Retirement Wealth Fell as Stock Market Soared, New Study
Reveals Boom a Retirement Bust for All but the Richest; Next Retirees More
Likely than Predecessors to Live in Poverty

A groundbreaking new study holds troubling news for millions of Americans
now nearing retirement age. Retirement Insecurity: The Income Shortfalls
Awaiting the Soon-to-Retire  shows that despite the recent unprecedented
stock market boom and rapid proliferation of 401(k) retirement plans,
typical Americans now facing retirement will have to tighten their belts
harder than previous retirees. More than 40% of households headed by someone
between the ages of 47 and 64 will not be able to replace even half of their
pre-retirement income once they stop working. Nearly 20% will have
retirement income below the poverty line.

Retirement Insecurity, by New York University economist and wealth expert
Edward N. Wolff and published today by the Economic Policy Institute, uses
the most recent data to examine changes in Americans' retirement wealth
during the 1980s and '90s and finds that more retired Americans will have
less to live on.

"In terms of retirement investment, what should have been the best of times
turns into something closer to the worst of times when you look closely at
what really happened to retirement wealth," explained Wolff. "In 1998, every
group of near-retirees except those at the very top lost ground compared
with their counterparts in 1983. The contraction of traditional defined
benefit pension plans and their replacement by defined contribution plans
appears to have helped rich, older Americans but hurt a large group of
lower-income Americans."

Senator Jon Corzine, who took part in the news conference releasing the
study, said, "As this study demonstrates, millions of Americans are
ill-prepared for retirement. The study shows that America's seniors cannot
afford the deep cuts in guaranteed Social Security benefits that President
Bush's Social Security commission has proposed."

"By focusing only on Social Security, we've been trying to fix the part of
the retirement system that's not broken," said EPI President Jeff Faux. "The
way we now go about providing for retirement just isn't working for middle-
and low-income Americans. It's time to stop talking about shifting Social
Security money to private accounts and start talking about how we can make
sure that working Americans will have adequate pensions that will enable
them to live decently in retirement."

The study's specific findings include:

Living on less than half: Between 1989 and 1998, the share of households
whose projected retirement income is less than half of their pre-retirement
income rose sharply from a 29.9% share to 42.5%.

Worse news for African Americans and Hispanics: Among these households, the
percentage that will have to live on less than half of their pre-retirement
income shot up even higher, to 52.7% in 1998.

The shrinking middle: For households at the median, retirement wealth
declined by 11% between 1983 and 1998.

Growing likelihood of poverty: The share of households facing the prospect
of retirement income below the poverty line grew from 17.2% in 1989 to 18.5%
in 1998.

Richest are the only winners: Only the very richest pre-retirees - those
with net worth of $1 million and above - saw this wealth increasing between
1983 and 1998. All other wealth classes, including those with net worth
between $500,000 and $999,999 are now in a weaker position heading toward
retirement than their predecessors were in 1983.

Losing ground: For all groups of pre-retirees with combined retirement
wealth of $999,999 or less, that wealth has shrunk between 11% and 32% since
1983.

Pension coverage stagnant: The share of near-retirement households with any
pension coverage - whether traditional pension plans or defined contribution
plans like 401(k)s - remained almost unchanged from 1983 to 1998, growing
just 3.5 points to 73.7% coverage in 1998.

Social Security coverage expanded: The single bright spot for the
one-quarter of Americans without private pension coverage of any kind is
that Social Security coverage became virtually universal, rising from 82.4%
in 1983 to 98.4% in 1998.
The downward trend in retirement adequacy for Americans in the middle and
below has gone unnoticed until now because of a tendency to look at average
rather than median retirement wealth. While the median has been dropping,
the average has been rising - fueled by a growing gap between the rich and
the middle. Thus, the rising average provides a false picture that fails to
reflect the growing unequal distribution of retirement wealth.

"The report reminds us that what is a serious problem for most Americans is
a potential crisis for African Americans. Private pension wealth for African
American households stands at 45 percent of whites, while African American
social security wealth stands at 59 percent of whites, for people 47 years
and older. The high value of social security wealth compared to the income
of African Americans, which is 51 percent of white income for people 47
years and older, confirms the progressive job that social security does,
compared to the disparity in private pensions. So, to help African Americans
close the wealth gap, we must work on disparities in private pensions," said
William Spriggs, an economist who is the Director of the National Urban
League Institute for Opportunity and Equality.

"The huge growth in wealth for the very wealthy has, until this study,
masked what has really been happening to retirement nest eggs for most
Americans," said Christian Weller, an EPI economist who studies retirement
and Social Security. "We need to take a fresh look at what we are doing to
strengthen and expand pension coverage or millions of Americans will pay the
price for our neglect."

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