CREDIT: The Chronicle Online
A majority of American workers are racking up debt faster than they’re piling up retirement savings. Such “debt savers” made up 46 percent of the workforce prior to the Great Recession, and in its wake almost two-thirds of the country’s working population has picked up that bad habit, according to a new report.
These debt savers have some interesting demographic characteristics. “The problem is not confined to the poorest Americans,” the Washington Post reports, and is instead concentrated among college-educated workers over the age of 40 who make more than $50,000 per year — a description that sounds a lot like the typical American middle-class worker. The median household income as of June was about $53,000.
The report, from the tech-based financial advice firm HelloWallet, notes that policy changes designed to increase the retirement savings rate nationwide have been effective. The amount of money set aside by the average near-retirement household, measured in terms of how many years of income the retirement savings could replace, roughly doubled from 1992 to 2010. But the debt burden for those households grew even faster, rendering that apparent public policy victory hollow, according to HelloWallet founder Matt Fellowes. “We raised the victory flag as people increased retirement contributions, but in reality the ability of people to retire is a function of lots of different variables, most important of which is what they are doing on the other side of the ledger,” Fellowes told the Post.
The 401(k) retirement account has become the primary vehicle for post-retirement financial planning over the past decade, replacing more traditional pensions. But economists have found that the rise of 401(k)s has reinforced economic inequality. The way the accounts are designed makes them more useful for high-income workers than for others.