Low-Wealth Retirees Face a Quintuple-Bogey
The focus of public policy on remedying income
deficiencies becomes increasingly inadequate as consumers
move into retirement. Successful retirement requires
adequate wealth. While it is difficult to formulate useful
policies that would reduce wealth deficiencies, public
policy should recognize the bogeys faced by low-wealth
Their first bogey is that they have so little wealth. At
the end of the second quarter of this year, the 50% of
consumers with the lowest amount of wealth held $3.03
trillion whereas the 1% of consumers with the most wealth
had $43.27 trillion. This and the bogey’s that follow are
based on the table below.
Their second bogey is that wealth inequality has been
growing. Between the third quarter of 1989 – the earliest
date for which wealth data are available from the Survey of
Consumer Finances -- and the second quarter of 2021, the
wealth of the lower half of wealth holders rose by 304%
whereas the wealth of the top 1% rose by 800%.
Their third bogey is that most of their wealth is in real
estate, which doesn’t generate returns that are convertible
by retirees into spendable funds. A partial though
potentially important exception is reverse mortgages, which
are part of bogey 5.
Their fourth bogey is that the concentration of their
wealth in real estate has increased over time, whereas the
concentration for higher-wealth consumers has declined.
Their fifth bogey is that the facilities available to low-wealth retirees to convert their limited wealth into spendable funds are unjustifiably deficient. The major deficiency is lack of integration between financial asset management, annuities, and reverse mortgages. A second deficiency is lack of effective competition in the markets for annuities and reverse mortgages. These result in lower spendable funds available to low-wealth retirees. I have written about these deficiencies, and how to fix them, in Integrating Retirement Plans - It Is Long Since Overdue.
Source: Federal Reserve Board’s Survey
of Consumer Finances