Your lowest-paid older workers can look forward to retirements defined by even poorer income prospects, according to economists who study wage and financial-planning data.
Since the ability to amass retirement savings is closely tied to pre-retirement income, financial disparities that show up in today’s payrolls will be magnified as baby boomers leave the workforce.
An Urban Institute analysis of government data found that the wealthiest 1% of Americans experienced 31% income growth between 2009 and 2012. For everyone else, income growth averaged just 0.4%.
According to the Economic Policy Institute, the median retirement savings of the wealthiest one-fifth of households increased from $45,539 in 1989 to $160,000 in 2010 in inflation-adjusted dollars. But households in the bottom fifth saw their retirement savings shrink over the same period, from $8,433 in 1989 to $8,000 in 2010, adjusted for inflation.
Implications for HR: Continue to remind employees that it’s never too late to invest in defined-contribution retirement plans like 401(k)s. Make sure workers age 50 and older understand that they can take advantage of catch-up provisions that allow larger annual contributions to 401(k), 403(b) and 457 plans, as well as IRAs.