40% of the American middle class face poverty in retirement, study concludes
cnbc.com
cnbc.com
1. The entire basis of this "news" is a study which is cited exactly nowhere in the article. There is a passing reference to a "new study" by the "Schwartz Center for Economic Policy Analysis." They don't even give a partial author list, let alone a title!
2. This is the study in question.[1] I had to dig this up on my own by piecing together specific claims with the name of the research organization and searching for them. The study appears to be closer to policy advocation than new research.
3. The author is a business management consultant who cites himself and his company for data contributing to the article, with no alternative supporting source ("Managing Defined Benefit Plans"). If there's a bias here it doesn't seem to be explicitly called out.
I can't comment on the core findings of the study, but I find its presentation and reporting in this article to be disingenuous and poorly supported. I'm deeply skeptical of the headline's claim given the incredibly politicized nature of the topic, the utter lack of critical analysis and the (intentional or merely incompetent) obfuscation of source material.
If you're going to start a discussion about economic policy or financial trends, please find and submit the original study. This article is just noise - it's barely capable of engaging with its source material. Why is a CNBC article on HN instead of the primary source?
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1. https://www.economicpolicyresearch.org/images/docs/research/...
I’m not sure being under the federal poverty line (or 2x cutoff as this article used) means the same thing at retirement age.
My mother, for example, has a monthly post-tax income of $1,400 or just under $17,000 per year. She must be poor right?
However, she owns her home outright. So her total reoccurring monthly expenses are around $1,200. That includes property tax, condo fees, health insurance premium, food and gas for the car. She has a very comfortable life. She would certainly not call herself poor.
She can basically live off her pension without touching the equity in her home or the savings she has (unless it’s for something important like travel).
A lot of people in retirement are no longer relying on income, instead they are taking money out of savings as well. Not sure if this paper accounted for that.
Whats that do to her budget?
You did mention health insurance, however.
Nonetheless, the federal poverty line definition has no rational connection at all to what realistically constitutes a livable income. Just like your mother would be fucked if anything happened to her and she didn't have her social net (you, presumably).
"Roughly 40 percent of Americans who are considered middle class (based on their income levels) will fall into poverty or near poverty by the time they reach age 65, according to the study.
The study also concluded that if workers age 50 to 60 decide to retire at age 62, 8.5 million of them are projected to fall below twice the Federal Poverty Level, with retirement incomes below $23,340 for singles and $31,260 for couples. Further, 2.6 million of those 8.5 million downwardly mobile workers and their spouses will have incomes below the poverty level — $11,670 for an individual and $15,730 for a two-person household."
Which is substantially easier in your 20s and 30s than in your 50s and 60s.
Huh? In your 20s and 30s you’re paying to build your pension, paying for your mortgage, paying for your kids, paying for your student debts.
In your 50s and 60s you’re paying for none of that. What are you paying for at all?
It's pretty likely you aren't doing much retirement savings or paying for a mortgage on an income below double the poverty level at any age.
You say $4000/mo for a couple = $48,000/yr – article says $15,730/yr for the worst off and $31,260/yr for the next worse off. Do you have a source for your figure?
0: https://www.fool.com/retirement/2018/08/21/heres-how-much-so...
With that out of the way, a few comments on this:
* Tontines were exorbitantly profitable for life insurers before they were outlawed - much more so than any modern products I’m aware of.
* Profitability is somewhat independent of product structure in that either a tontine or an annuity can be priced to achieve a given level of profitability.
* The structure of a tontine means that payments start off much lower than a life annuity and grow substantially (exponential growth with a growth rate that itself increases exponentially) over time. Most retirees would probably prefer a higher initial payment and lower growth rate, since the amount of income they need in retirement generally doesn’t increase that much over time.
* While annuities are reasonably profitable for insurers, profitability metrics are lower than you might expect. The vast majority of what I’ll loosely call “profit” goes to agents and “financial advisors” in the form of commissions, not to the insurance companies themselves. While they’re uncommon due to low demand, there are annuities that can be purchased directly from insurers (i.e., without paying a commission), and the rates are probably similar to what you’d get through a trust because the expenses scale well.
* If you’re totally opposed to any profit being captured by financial institutions’ shareholders, mutual insurance companies are owned directly by their policyholders and return profits to them in the form of dividends. The only potential advantage to a trust over a mutual insurance company is that the former might be able to back policies with riskier investments (and I’m not at all certain that that’s the case).
* While the personal savings rate in the US has declined since 1960, I’m not sure that that’s still true when going all the way back to the turn of the 20th century. Can you provide a source for that claim?