The United States: For Richer and for Poorer
A recent Health and Retirement Study by the Brookings Institution found that life expectancy is rising more quickly for people at the highest ranks of socio-economic status, while declining or remaining static for those in the lower levels. This discrepancy was raised in relation to Social Security benefits and posed the question as to whether raising the full retirement age as a means of sustaining the program is fair to those of a lower socio-economic class — since research shows that this group tends to pass away younger and may thus receive fewer benefits. In fact, the study concluded that although higher income earners may pay more into our progressive tax system, the differing rates of mortality among socio-economic classes has a substantial effect on the distribution of benefits in favor of higher income individuals.
[CLICK HERE to read the report, “Differential Mortality and Retirement Benefits in the Health and Retirement Study,” at The Brookings Institution, April 8, 2014.]
On the issue of retirement funding, Olivia Mitchell, executive director of the Wharton’s Pension Research Council, recently discussed her new research paper on incentivizing pre-retirees to work longer. Her findings indicated that if workers who choose to delay taking Social Security benefits until after their full retirement age are given the chance to receive their delayed retirement credit as a lump sum payment instead of an increased monthly benefit, they would be more willing to work for one-and-a-half to two years longer. [CLICK HERE to view the video, “Exchanging Delayed Social Security Benefits for Lump Sums: Could This Incentivize Longer Work Careers?” at RetireSecure Blog, April 9, 2014.]
The debate surrounding an increase of the minimum wage continues to be a topic in the news. To raise awareness of this issue, some legislators have accepted the challenge of trying to live on just $42 a week for food, the lowest amount the U.S. Department of Agriculture estimates is possible to provide for a nutritious diet. One state representative noted that she had to pay six dollars for a gallon of milk — which represents almost an hour of work for minimum wage earners — observing that the current minimum wage of $7.25 hasn’t exactly kept pace with inflation. [CLICK HERE to read the article, “Lawmakers Take the ‘Minimum Wage Challenge’ to Eat Off a Reduced Budget for a Week,” at ThinkProgress.org, April 10, 2014.]
Another discrepancy between high-income and low-income households is that higher-income households are generally more capable of saving more for their children’s college education. This could mean that more college graduates from low-income households will be burdened by student loans when they graduate — potentially compounding the income divide in the future. [CLICK HERE to read the article, “College Savings Gap Widens Between Rich and Poor,” at
CNNMoney.com, April 10, 2014.]
Retirement benefits, student loans and healthcare costs are all factors that may contribute to the growing diversity of income in America. As a result, the country’s middle class has shrunk from 53 percent to 44 percent since 2008. This continuing issue implores the question, how much can the country’s economic growth rate increase if fewer people are able to afford consumer products and services? Consider the recent financial woes of retailers like Sears, J.C. Penney and Loehmann’s. These are just a few examples of businesses that target middle-class consumers, which have closed many of their stores nationwide. [CLICK HERE to read the article, “More Americans See Middle Class Status Slipping,” at USA Today, April 2, 2014.] [CLICK HERE to read the article, “The Middle Class Is Steadily Eroding. Just Ask the Business
World,” at The New York Times, Feb. 2, 2014.]
Developing an appropriate financial strategy for retirement is important for people of all socio-economic classes. If you’re concerned about how retirement may impact your lifestyle financially, please give us a call.
Our firm assists retirees and pre-retirees in the creation of retirement strategies that include the use of insurance products.
*The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not intended to be used as the sole basis for financial decisions, nor should they be construed as advice designed to meet the particular needs of an individual’s situation. All clients are encouraged to consult qualified tax, legal and investment professionals before making any decisions about their personal situations.
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