Financial Asset Ownership: Only for the Wealthy?

Our friend Tyler Bond is an accomplished advocate and researcher with experience working for political campaigns, advocacy organizations, think tanks, and on Capitol Hill. His professional focus is retirement, specifically, and economic policy, broadly. His writing has been featured in outlets such as The Hill, MarketWatch, and the Huffington Post and he has been quoted in various outlets including Barron's and The Financial Times … and Retirement Security Matters.

Here we go deep on financial asset ownership – who’s got it, and who does not – and policy ideas that could make a difference. If you like data, this piece is for you!

Tyler Bond: you're the research manager for the National Institute on Retirement Security, lovingly referred to as NIRS. Tell us about your role and your path to NIRS.

If you had asked me, oh, say eight years ago, if I was going to be researching retirement issues, I probably would have looked at you like you were a little crazy. This is not what I planned to do. I was a philosophy and political science double major as an undergrad.

After student government I did some political campaigning, then chose George Washington University for a master's degree in public policy. I had a wonderful internship at the Center on Budget and Policy Priorities; I worked on the Hill for a brief period; in time I joined the National Public Pension Coalition, advancing to program manager. Research became an increasingly important part of my role at NPPC, and that brought me into contact with NIRS and their work. When Dan Doonan offered me the role as Research Manager, I couldn’t refuse.

I've been at NIRS for two and a half years now, and it's been really great. I like to do research that I think people can use. When we're setting our research agenda we consider what we can be creating that people who are out in the world doing advocacy work will find useful.

That's awesome. Along this unexpected research path you've recently published your first solo report on a hot topic: how financial asset inequality impacts retirement security. What got you focused on this?

Believe it or not, the inspiration for this report was actually work by the Government Accountability Office in 2006. At the time, there was a theory bouncing around financial news shows that when the Baby Boomers started to retire, they would withdraw all of their financial assets from the market to finance their retirement, and then the market would collapse.

Worrying. So a member of Congress asked the GAO to examine whether this was an actual possibility. The GAO found that it was definitely not a possibility for a variety of reasons. One of those reasons was that the ownership of financial assets is highly concentrated at the top.

Interesting. Still true?

Yes. In 2019 at the suggestion of Diane Oakley (retired ED, NIRS), Nari Rhee and I took a fresh look and found that if anything, asset concentration among wealthy Boomers had become even greater from 2004 to 2016. We also looked at Generation X and Millennials and found that they too had really high degrees of concentration of ownership among those with the highest net worth.

I always liked that issue brief but wanted to go deeper. The data for this research comes from the Federal Reserve Survey of Consumer Finances. When the 2019 data came available, I wanted to expand on the research to include a more current view, to look back at Generation X over more points in time, and to add a racial component to the analysis, because that is really important when you're examining who owns financial assets in the United States.

You’ll see the results in the Stark Inequality report, which we released at the beginning of September. What we find is that the concentration of ownership of financial assets becomes greater over time, and it is consistent across generations. We also see that ownership of financial assets is  very heavily concentrated among white Americans in all three generations.

We recently released additional analysis looking specifically at the middle class, because the Stark Inequality report really focuses on the discrepancies between the top and the bottom – meaning what the bottom 50% of the population has versus what the top 5% has.

I realized that we hadn't spent a lot of time talking about people in the middle. So I ran an analysis looking at the folks between the 30th percentile and the 70th percentile, that true middle 40%, to find out how much they own.

We’re holding our breath here.

It turns out they own very little in terms of financial assets. In 2019 middle class Millennials owned 14% of financial assets. This drops to 8% for Generation X and it drops to 6% for Baby Boomers.

When we're talking about 40% of the Boomer population only owning 6% of the financial assets, that's a very small share relative to their size of the population.

The good news is as the Baby Boomers retire the market's not going to crash. The bad news is that's because the wealth is so concentrated that those folks don’t need to pull very much of it out of the market to meet their income needs.

You’ve got it. We're ten years into the Baby Boomers retiring, and the market is very strong today despite being 19 months into a global pandemic. So I think we certainly don't have anything to fear from the retirement of the Boomers, but I think that this finding does have serious implications for other folks' retirement. Especially as we move increasingly into a retirement system that's built around the individual ownership of financial assets in 401(k)s, IRAs and other defined contribution plans.

You touch on potential policy changes that could improve the amount of financial assets that people have saved for retirement, even at lower and middle income levels. Tell us more.

Yes. First, in recent years we've seen a number of states pass legislation to establish state-facilitated retirement savings programs. The majority of those have adopted an Auto IRA model with California, Illinois, and Oregon the farthest along in terms of establishing those programs, getting employers signed up, getting workers participating, contributing, and saving through the programs.

We've seen more states continue to pass legislation. Colorado did recently, Virginia did this year. I think we'll see more states follow this path in the next few years. And I think this is really important because these programs serve some of the groups that most need help with saving for retirement, which are lower-income folks, people who work but don't earn a lot, and people who work for small businesses.

Small businesses often don't feel like they're able to offer a retirement savings plan. So even though someone may be a middle-class worker in terms of their income, they may not have a plan through their employer if they work for a small business.

How much does this matter?

We know that plan access is one of the most important hurdles to overcome in order to get someone started on a path to saving for retirement. It's true that anyone could go to a financial institution, set up an IRA and start saving on their own, but we know that that's not what people do.

If they don't have a plan through their employer, the likelihood is they're not saving for retirement at all. So I think these state programs really meet an important need in terms of giving a way through their employer for these workers to save.

I'm excited not just to see more states continue to pass this legislation, but also to see how these programs continue to innovate, evolve, and scale up. Because even the three states that are farthest along have only started to hit some of their initial milestones in terms of getting employers signed up, getting workers participating, seeing the assets grow quarter to quarter. I think as they continue to grow and they learn early lessons, they will make tweaks. There is potential for more good things to come down the road from those plans.

So that’s one improvement – what else do you see as highly impactful?

In the Stark Inequality report we also look at reforming retirement tax incentives -- let your readers know this is an issue that NIRS plans to spend more time on in 2022. One thing we've seen is that in various ways, the existing retirement tax incentives we have really most benefit and incentivize those at the top to save for retirement.

If you're one of those lower-income workers, you may not derive much real tax benefit from saving through a retirement plan. And the Saver's Credit, which exists to help lower-income workers save for retirement, has several design shortcomings that make it less useful to a lot of folks.

There is legislation moving around on the Hill that will reform the Saver's Credit to make it function more like a savings match. I think there's room for policymakers to make changes so that middle-class workers not only would have more incentive to save but would see a greater benefit when they do so. And any amount of savings that we can increase for those workers would increase the amount of financial assets that they own, which would start to even out that ownership more than what we see today.

Interesting. And are you thinking about a refundable saver's credit when you talk about match?

Yes. Making it refundable, smoothing out the income cliffs. The way it's structured right now when you hit certain income levels, the amount of the match drops significantly. And then when you go up another level it drops significantly again.

I think smoothing that out, making the credit refundable, and perhaps even finding a way to deposit the amount from the Savers' Credit directly into a retirement savings account – all of these things would be beneficial. And candidly, the amount that’s spent every year on the Saver’s Credit is miniscule in comparison to the amount that's spent on tax incentives that go towards other types of retirement savings.

You didn't say this, but that may be benefitting people that already have large retirement accounts. We don't want to put words in your mouth, Tyler.

Over the summer, there's been some really interesting research about mega IRAs. It's completely legal and permissible that if you set up your IRA the right way, and you have enough income, you can easily amass many millions of dollars in an IRA account.

A lot of the existing tax incentives basically help to facilitate this sort of activity. So if you're earning $40,000 a year, today’s tax incentives aren't really doing much for you. Whereas if you earn $400,000 a year, they're probably doing a lot more for you.

Good point. Now, we know you’re about to lay some math on us here – what else should we know about the range of experiences you are seeing?

I think the other finding from the research is the discrepancy between means and medians.

Don’t run away now! This data really shows how stark some of these differences are. To give your readers one example, for Baby Boomers in 2019 the median financial assets owned was just over $47,000. At the same time the mean was almost $600,000. So there's a very wide difference.

It's because those folks at the top are really pulling up the numbers when you're looking at the average amount. When you look at the median instead, it's much closer, frankly, to the median national income. I think that says a lot.

Important math lesson! This is a pre-holiday interview, Tyler so here comes our fun question: what are you going to be for Halloween?

I have an almost-three-year-old who is obsessed with Daniel Tiger. You may be able to guess this: she is going to be Daniel Tiger. Her baby brother is going to be Baby Margaret, Daniel Tiger's little sister. Then, according to our daughter, I'm going to be Dad Tiger and my wife is going to be Mom Tiger. It looks like we will be the Tiger family for Halloween.

We like that. We hope we get a picture. That's all we’re going to say.

Thank you so much for helping us get our Research on, Tyler Bond! Want more? You can connect directly with Tyler Bond here. You can follow Tyler’s work at NIRS here. You can also connect with Tyler on Facebook, Twitter, and LinkedIn. PS Did you know Daniel Tiger is also all about saving for college? Way to go Tyler Tiger family!

This piece was featured in the November 4, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.