Amid Asset Boom, Half of Americans Are Falling Behind in Retirement Wealth

Over the past three decades, American families in the bottom half of the wealth distribution have made little progress in accumulating assets and saving for retirement, according to the Economic Innovation Group’s analysis of the latest data from the Federal Reserve’s Distributional Financial Accounts, which merges data from the Survey of Consumer Finances and the Financial Accounts of the United States. 

As a consequence, large segments of the U.S. population have been unable to meaningfully participate in and benefit from the boom in asset prices underway since 2000. 

The EIG’s analysis showed that the bottom half’s share of national asset holdings fell from 7.2% in 1989 to 5.3% in 2021. Meanwhile, the share of household wealth held by the top 1% increased from 20.8% to 29%. 

The share of all household wealth in the U.S. held by the top 10% is now approaching two-thirds, according to the analysis.

Lagging Growth in Retirement Wealth 

Since 1989, the first year in the data series, pension entitlements have increased substantially for the top half of American households, and grown only modestly from a very small base for the bottom half.

Pension entitlements include assets in defined contribution retirement plans, the promises of defined benefit retirement plans and annuities.

The analysis showed that pension entitlements held by the top 1% grew by 720% in nominal terms between 1989 and 2021, compared with 470% growth for the bottom half. 

The EIG noted, however, that these figures mask big disparities in wealth accumulation. 

In dollar amounts, the top 10% added some $14 trillion to their total entitlements, while the bottom 50% added $716 billion — $11.4 trillion and $504 billion in real terms — 19.5 times as much. 

In fact, the bottom half’s share of total national pension entitlements fell over the time period, from 4.3% in 1989 to 3% in 2021. 

Or, as the EIG put the matter another way, of the $25 trillion in retirement assets accumulated over the period, a mere 3% belonged to households in the bottom half of the country’s wealth distribution. The top 10% of households, by contrast, claimed 54% of all new retirement wealth.

Older Workers’ Advantage 

In real terms, the prime age workforce has seen very little increase in pension entitlements since the late 1990s — in stark contrast to older workers and retirees, whose holdings have grown briskly over time, according to the analysis. 

As a result, younger households own a shrinking share of the nation’s pension entitlements. In 1989, total pension entitlements were split evenly between those with at least 10 more years before reaching retirement age and those near or past retirement age. Today, older households, those 55 and older, claim 63.5% of the nation’s retirement wealth. 

The EIG pointed out that the aging of the large baby-boomer generation does not provide a full explanation. Using inflation-adjusted numbers, the analysis showed that the per-household gap between the younger and older groups grew from $63,500 in 1989 to $160,700 in 2021. 

The effect of the prime age cohort’s slow progress in accumulating retirement assets means they miss the opportunity to enjoy compounding returns, which will compel them to set even more aside in the years ahead or else see a reduced standard of living in retirement.

Slow Convergence Across Races and Ethnicities 

The analysis uncovered a sign of progress for groups typically left behind. Real pension entitlements per household increased slightly faster for Black and Hispanic households between 1989 and 2021 than for white ones. 

In 2021, both Black and Hispanic households had 2.6 times the amount of pension entitlements compared with 1989, versus 2.4 times for white households. 

Despite this slightly higher growth rate, the average white household still had three times the pension entitlements of the average Hispanic household and two times that of the average Black household in 2021. 

Today, white households claim 79% of all retirement assets, even though they represent only 65% of all households. 

“On current trajectories,” the EIG said, “the pension entitlements of Black and Hispanic households are not on course to catch up to white households for hundreds of years, if ever.”