I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.
I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.
It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.
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The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
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The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.
Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
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Most wealth accumulation happens rapidly and late in life — after the kids leave, when income is high, debts drop, 401(k) accounts fatten and home equity swells, according to Fed data. The safety net — Social Security, pensions and Medicare — also has resulted in big increases in income for the elderly and a sharp decline in the rate at which they dissipate their assets in old age. Most people over 60 have no mortgage debt, no credit card debt and no car loan.
Good. That is exactly what Social Security should focus on reducing poverty. But creating stressful economic conditions close to poverty (and into in some cases) by taxing the poor to pay the rich elderly benefits is not wise.
Related: USA Federal Debt Now $516,348 Per Household – Income Inequality in the USA – Buffett on Taxes – Estate Tax Repeal – The Widening “Marriage Gap” is Breeding Income Inequality -Social Security Trust Fund
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2 Comments so far
Hi Curious Cat,
I didn’t realize that the elderly are the richest group. I guess the poor elderly are the ones we notice more since we see them working still in low paying jobs and buying cheap stuff in shops.
As regards numbers of rich and poor elderly, I would have thought the rich would be a minority?
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