Retirement savings declined for low-income Americans in the 2010s, even as the economy grew

As the old saying goes, a rising tide lifts all the boats in the harbor. But when it comes to retirement assets, the U.S. economy hasn’t worked that way — in fact, those at the bottom end have sunk again.

This is revealed by a new study by Economic Innovation Group (EIG), a bipartisan public policy think tank in Washington, DC. Using data from the Congressional Budget Officethe group took a close look at how Americans created wealth — or did not — from 2010 to 2019, as the economy long recovered from the Great Recession.

What they found is disturbing. While Americans at the top and middle of the economic ladder have dramatically increased their retirement savings — through the use of 401(k)s, pensions, and other plans — those in the bottom 25% are not. have not done. Indeed, they saw the value of their savings decrease by 16%.

“We were surprised that a record economic expansion – which was the one that followed the Great Recession – could be so uneven,” said Connor O’Brien, one of the study’s co-authors. “You would think that the longer it lasts, the more people it will attract. But that doesn’t seem to have happened.”

That’s not how recoveries usually go. From 1992 to 1998, as the US economy rebounded from the recession of the early 1990s, the poorest 25% of Americans saw their retirement assets increase by 84%, faster than any other income group. And from 2001 to 2007, during the recovery from the dot-com crash, savings in the bottom quartile grew 44% — more than any other group except the top tenth of earners.

Then, in the 2010s, the opposite happened. Why was this cover different? Why have the pension assets of America’s poorest citizens not just increased, but decreased? As the United States recovers from the COVID-19 pandemic, these questions still resonate. Experts say that if the same issues that caused this gap still exist, low-income Americans could potentially see their savings shrink again in the 2020s.

The EIG study does not identify the reason for this discrepancy, but O’Brien said there were a few possible culprits. The first is that the recovery from the Great Recession was so slow – it took about a decade to recover the 8.6 million jobs lost during the crisis of 2007-2009.

“It’s a factor especially for those on the bottom,” O’Brien said. “The recovery in employment has been much slower.”

This has not been the case with the post-pandemic recovery. By the summer of 2022, the United States had quickly regained 25 million jobs he lost in the spring of 2020.

But O’Brien also pointed to another possible cause, which still hampers America’s lowest earners today: a lack of access to retirement accounts. According to a recent AARP study, nearly half of all private sector workers between the ages of 18 and 64 do not have access to an employer-sponsored pension plan. And that barrier is closely tied to income — of those 57 million workers, 81% earn $50,000 a year or less.

Without this participation in the market, O’Brien said, workers cannot benefit from its recovery.

“If you don’t have access to a plan, you don’t know what the stock market is doing,” he said.

But that’s not the only thing low-income workers are excluded from. They also lack access to the housing market, another important tool for building retirement wealth. According to the EIG study, only 12.7% of families in the bottom quarter of Americans have home equity. And it hasn’t always been this low — in 2010, 20.6% of this cohort owned a home. Now, as real estate prices soar, the poorest Americans are also being excluded from these benefits.

“Homeownership has been an effective way to create wealth for those who can afford it, but families at the bottom rungs are largely left out,” the study says.

For American policymakers, these are serious concerns — and Congress is slowly moving to address them. The various bills collectively called Secure 2.0 propose a number of measures to encourage more Americans to invest in retirement plans, including requiring automatic enrollment in 401(k)s. Experts hope the final, combined bill can pass before the end of the year – but in US politics, nothing is guaranteed.

In the meantime, the U.S. economic recovery could continue to leave many workers behind, especially those with little sway in the stock or housing markets.

“A rising tide lifts all boats,” O’Brien said, but only “if all boats have solid bottoms with no holes in them.”