Offbeat Social Security will not protect retirees from rising income inequality, study finds

19:06  07 august  2018
19:06  07 august  2018 Source:   cnbc.com

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Wealthier retirees will soon be doing even better, while lower- income older people will struggle more than they already are, according to the Urban Institute . "People have this perception that with Social Security , retirement income is more protected from earnings inequality , when in fact that's not the

A new study finds that only 4% of retirees start claiming their Social Security benefits at the most financially optimal time. And current retirees collectively will lose .4 trillion in potential income to fund their retirement because they started drawing benefits at a less than ideal time. That's roughly 1

If income inequality continues to grow, so too will the gap between wealthy and struggling retirees.

That's the takeaway from a new report by the Urban Institute, a progressive think tank in Washington, D.C., and funded by the Department of Labor, which analyzed how rising inequality will shape the landscape of American retirement.

"People have this perception that with Social Security, retirement income is more protected from earnings inequality, when in fact that's not the case," said Damir Cosic, a research associate in the Income and Benefits Policy Center at the Urban Institute.

Social Security benefits, along with defined contribution plans and other retirement savings options, generally are tied to previous earnings, which are increasingly a story of imbalance.

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retirement . U.S. income inequality has worsened significantly in the past 30 years. Pope Francis has called economic inequality “the root of social evil,” and inequality was a major theme in the last presidential election, with different solutions offered up by candidates of the left and right .

Retirees who do not currently pay federal income taxes on their Social Security benefits may owe taxes due to the increase, which is technically known It depends on how the COLA impacts what the Social Security Administration calls your “combined income ,” a figure that reflects multiple sources

People who fall near the bottom of income distribution, after factoring in inflation, have actually seen their wages decline over the past few decades, according to the Institute. Meanwhile, the share of earnings going to the top 0.1 percent has swelled by more than 400 percent between 1971 and 2001.

The researchers simulated an experiment to understand how inequity in earnings reverberates into retirement.

A lot, it turns out.

People aged 67 to 75 in the top fifth of the income distribution will see their income increase by 3 percent in 2045, 5 percent in 2065 and 7 percent in 2085, the researchers found.

On the other hand, those aged 67 to 75 in the bottom fifth of the income distribution will see their income fall by 3 percent in 2045, 6 percent in 2065 and 13 percent in 2085.

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The income divide in paychecks will follow Americans into retirement . Does income inequality during one's career carry over to inequality in retirement income ? Probably according to the Urban Institute .

Only 4% of retirees start claiming their Social Security benefits at the most financially optimal time, according to a new study from United Income , an online investment That means the remaining 96% of retirees are losing out on a collective .4 trillion in potential retirement income , or about 1

Many retirees today are already finding it hard to get by. The average monthly Social Security payment is $1,404, and more than 40 percent of single adults receive more than 90 percent of their income from that check, according to the government.

Meanwhile, debt among older people is on the rise. In 2016, the average debt in families in which the head of the household is age 75 or older was $36,757. That is up from $30,288 in 2010, according to a recent report by the nonprofit Employee Benefit Research Institute in Washington.

The actual results of climbing inequality on retirement are likely to be even higher than the Institute's estimates, Cosic said, because he and his colleagues accounted for only one of the drivers of the divide: the so-called education premium, the fact that degrees are more in demand, while people with less schooling are seeing their paychecks shrink.

To be sure, that effect is severe. In 2065, people who fall between the ages of 67 and 75 who only have a high school degree will have seen their income fall by 8 percentage points, compared to a 16 percent increase for those who completed college.

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In fact, claims that rising income inequality threatens our democracy are unfounded. In order to determine whether rising inequality has amplified the influence of the rich, one must first He found that change favored by 80 percent or more of median- income Americans—but not by 80 percent of

Social Security retirement benefits were never intended to fully replace your prior earnings. In order to qualify for Social Security retirement income benefits, the total number of credits you need to accumulate is 40. Accounting For Rising Costs Of Living. Social Security also offers an annual

But in addition to employers' demand for high-skilled workers, income inequality is projected to worsen under globalization, rapid technological advances, automation and the loss of employees' bargaining power, according to Cosic. Therefore, he said, "things are likely to get even worse if current forces persist."

Over the researchers simulation period, the average retirement income grows only half as fast as the average lifetime earnings.

That's in part because they forecast Medicare premiums will steeply increase. In addition, they estimate the average income from defined benefit pensions will drop substantially, since the share of employers that offer such plans is dwindling.

Cosic said these findings are a warning sign, as low-income people, before and after retirement, are already suffering.

"That that income would get reduced further is striking," he said.

What is means-testing, and how could it affect Social Security? .
Is this solution an easy way to save Social Security from disaster?For a majority of these folks, Social Security is indispensable. Over 60% of aged beneficiaries count on the program to provide them with at least half of their monthly income. Among this group, a third are reliant on Social Security for virtually all of their income (90% to 100%). It's for these reasons that I often refer to Social Security as "America's most important social program.

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