U.S. Has Worst Wealth Inequality of Any Rich Nation, and It's Not Even Close

I've discussed the Credit Suisse Global Wealth Reports before, an excellent source of data for both wealth and wealth inequality. The most recent edition, from November 2016, shows the United States getting wealthier, but steadily more unequal in wealth per adult and dropping from 25th to 27th in median wealth per adult since 2014. Moreover, on a global scale, it reports that the top 1% of wealth holders hold 50.8% of the world's wealth (Report, p. 18).

One important point to bear in mind is that while the United States remains the fourth-highest country for wealth per adult (after Switzerland, Iceland, and Australia) at $344,692, its median wealth per adult has fallen to 27th in the world, down to $44,977. As I have pointed out before, the reason for this is much higher inequality in the U.S. In fact, the U.S. ratio of mean to median wealth per adult is 7.66:1, the highest of all rich countries by a long shot.

The tables below illustrate this. First, I will present the 29 countries with median wealth per adult over $40,000 per year, from largest to smallest. The second table also includes mean wealth per adult and the mean/median ratio, sorted by the inequality ratio.

1. Switzerland	$244,002
2. Iceland	$188,088
3. Australia	$162,815
4. Belgium	$154,815
5. New Zealand	$135,755
6. Norway	$135,012
7. Luxembourg	$125,452
8. Japan	$120,493
9. United Kingdom	$107,865
10. Italy	$104,105
11. Singapore	$101,386
12. France	$  99,923
13. Canada	$  96,664
14. Netherlands	$  81,118
15. Ireland	$  80,668
16. Qatar	$  74,820
17. Korea	$  64,686
18. Taiwan	$  63,134
19. United Arab Emirates	$  62,332
20. Spain	$  56,500
21. Malta	$  54,562
22. Israel	$  54,384
23. Greece	$  53,266
24. Austria	$  52,519
25. Finland	$  52,427
26. Denmark	$  52,279
27. United States	$  44,977
28. Germany	$  42,833
29. Kuwait	$  40,803

Source: Credit Suisse Global Wealth Databook 2016, Table 3-1

Now that I've got your attention, let me remind you why this low level of median wealth is a BIG PROBLEM. Quite simply, we are careening towards a retirement crisis as Baby Boomers like myself find their income drop off a cliff in retirement. As I reported in 2013, 49% (!) of all private sector workers have no retirement plan at all, not even a crappy 401(k). 31% have only a 401(k), which shifts all the investment risk on to the individual, rather than pooling that risk as Social Security does. And many people had to borrow against their 401(k) during the Great Recession, including 1/3 of people in their forties. The overall savings shortfall is $6.6 trillion! If Republican leaders finally get their wish to gut Social Security, prepare to see levels of elder poverty unlike anything in generations. It will not be pretty.

Let's move now to the inequality data, where I'll present median wealth per adult, mean wealth per adult, and the mean-to-median ratio, a significant indicator of inequality. These data will be sorted by that ratio.

1. United States	$ 44,977	$344,692	7.66
2. Denmark	$ 52,279	$259,816	4.97
3. Germany	$ 42,833	$185,175	4.32
4. Austria	$ 52,519	$206,002	3.92
5. Israel	$ 54,384	$176,263	3.24
6. Kuwait	$ 40,803	$119,038	2.92
7. Finland	$ 52,427	$146,733	2.80
8. Canada	$ 96,664	$270,179	2.80
9. Taiwan	$ 63,134	$172,847	2.74
10. Singapore	$101,386	$276,885	2.73
11. United Kingdom	$107,865	$288,808	2.68
12. Ireland	$ 80,668	$214,589	2.66
13. Luxembourg	$125,452	$316,466	2.52
14. Korea	$ 64,686	$159,914	2.47
15. France	$ 99,923	$244,365	2.45
16. United Arab Emirates	$ 62,332	$151,098	2.42
17. Norway	$135,012	$312,339	2.31
18. Australia	$162,815	$375,573	2.31
19. Switzerland	$244,002	$561,854	2.30
20. Netherlands	$ 81,118	$184,378	2.27
21. New Zealand	$135,755	$298,930	2.20
22. Iceland	$188,088	$408,595	2.17
23. Qatar	$ 74,820	$161,666	2.16
24. Malta	$ 54,562	$116,185	2.13
25. Spain	$ 56,500	$116,320	2.06
26. Greece	$ 53,266	$103,569	1.94
27. Italy	$104,105	$202,288	1.94
28. Japan	$120,493	$230,946	1.92
29. Belgium	$154,815	$270,613	1.75

Source: Author's calculations from Credit Suisse Global Wealth Databook 2016, Table 3-1

As you can see, the U.S. inequality ratio is more than 50% higher than #2 Denmark and fully three times as high as the median country on the list, France. As the title says, this is not even close.

The message couldn't be clearer: Get down to your town halls and let your Senators and Representatives know that it's time to raise Social Security benefits and forget the nonsense of cutting them.

Cross-posted to Angry Bear.

New Social Security Crisis Set for 2016

The House Republicans, in their eagerness to find a way to cut Social Security benefits, on Tuesday passed a new rule preventing the reallocation of monies between the Social Security Trust Fund and the Social Security Disability program.

No, don't let your eyes glaze over! This is a big deal. The disability portion of Social Security, with 11 million beneficiaries receiving an average $1146 a month in benefits, is expected to exhaust its separate trust fund in late 2016. When that has happened in the past, Congress has reallocated money between the two programs to keep them both solvent. Now, the new House rule prevents it from approving such a reallocation unless "it is included in a proposal that 'improves the overall financial health of the combined Social Security Trust Funds.'"

Of course, that means either raising payroll taxes or cutting benefits. Which do you think House Republicans will support?

As Joan McCarter points out, the strategy behind this is to pit retirees against the disabled. How long will it take older Republican voters to see the endgame of this strategy ("First they came for...")? With the crisis scheduled for the 2016 election season, we may soon find out.

U.S. Median Wealth Up from 27th to 25th

Today Credit Suisse released its Global Wealth Databook 2014 to go along with the Global Wealth Report issued Monday. Global wealth hit another new record of $263 trillion as of mid-2014, up 8.3% from mid-2013 (Report, p. 3). Rich people are doing well, but how about the middle class? One measure of this is median wealth per adult, the exact midpoint of the wealth distribution.

In the United States, mean wealth per adult reached $347,845, and median wealth per adult hit $53,352 (Databook, Table 2-4). This represents an increase in median wealth of 18.8% over 2013, enough to move the U.S. up two places to 25th in the world.

Before we congratulate ourselves too much, we need to remember that $53,352 is not all that much money, especially for retirement (don't forget that figure includes home equity). With 49% of Americans in the private sector having no retirement plan at all, and only 20% having a defined-benefit pension, a retirement crisis is looming for younger baby boomers and all later middle-class retirees. Meanwhile, if Republicans take control of the Senate in this year's elections, we are likely to hear increasing demands for cuts to Social Security, when what we actually need is to raise Social Security benefits.

The relatively low median wealth also points to persistent inequality in the United States. While only 25th in median wealth per adult, the U.S. ranks 5th in mean wealth per adult. With a ratio between mean and median wealth per adult of 6.5:1, this is higher than any of the other top 25 countries. Number one Australia has a ratio of less than 2:1. Without further ado, here is the list of all countries with median wealth per adult above $50,000.

Cross-posted at Angry Bear.

Median wealth per adult, mid-2014

1. Australia                  225,337

2. Belgium                   172,947

3. Iceland                    164,193

4. Luxembourg            156,267

5. Italy                         142,296

6. France                     140,638

7. United Kingdom     130,590

8. Japan                       112,998

9. Singapore                109.250

10. Switzerland           106,887

11. Canada                    98,756

12. Netherlands             93,116

13. Finland                    88,130

14. Norway                   86,953

15. New Zealand          82,610

16. Ireland                     79,346

17. Spain                       66,752

18. Taiwan                    65,375

19. Austria                    63,741

20. Sweden                   63,376

21. Malta                       63,271

22. Qatar                       56,969

23. Germany                 54,090

24. Greece                     53,375

25. United States          53,352

26. Israel                       51,346

27. Slovenia                  50,329

Source: Credit Suisse Global Wealth Databook 2014, Table 2-4

Median Wealth Increases, but U.S. Still Stuck at 27th in World

The new Global Wealth Report and Global Wealth Databook from Credit Suisse were released last week. According to the Report (p. 3),

Global wealth has reached a new all-time high of USD 241 trillion, up 4.9% since last year and 68% since 2003, with the USA accounting for 72% of the latest increase. Average [mean] wealth per adult reached a new all-time high of USD 51,600, with wealth per adult in Switzerland returning to above USD 500,000.

For the United States, this represents an increase in mean wealth per adult of 11.4% from mid-2012 to mid-2013 (Databook, p. 92). Median wealth per adult increased even faster, from $38,786 to $44,911, or 15.8%, although we should recall that measurement of median wealth is less reliable than that for mean wealth.

Nonetheless, while these data represent improvement for the typical American, there was no change in our ranking relative to the rest of the world. While Kuwait and Cyprus fell below the U.S., Slovenia and, more surprisingly, Greece now have higher median wealth per adult. Thus, the United States remains only 27th in the world.

These data are significant for at least two reasons. First, they highlight the fact that while the United States has a higher gross domestic product per capita than all but four of the 26 countries ahead of it in median wealth per adult (Qatar, Luxembourg, Singapore, and Norway), the long-term trend of economic policies has clearly hurt the middle class. Inequality is a big part of the explanation here: mean wealth per adult in the U.S. is 6.7 times median wealth per adult, the highest ratio in the top 27. By contrast, in #1 Australia the mean-to-median ratio is only 1.8:1. In fact, this ratio is less than 3:1 for 19 of the 26 countries with higher median wealth per adult. In Slovenia, mean wealth per adult is less than 1.5 times median wealth per adult! (All figures calculated from Databook, Table 3-1.)

Second, these low levels of wealth contribute to the coming retirement crisis of the middle class. Americans have low levels of saving, while Social Security still looks vulnerable to the chopping block despite our already high level of elder poverty.

Here are the top 27 countries by median wealth per adult.

Country                                                      Median Wealth
                                                                   Per Adult

1.  Australia                                                    $219,505
2.  Luxembourg                                               $182,768
3.  Belgium                                                     $148,141
4.  France                                                        $141,850
5.  Italy                                                           $138,653
6.  United Kingdom                                         $111,524
7.  Japan                                                         $110,294
8.  Iceland                                                      $104,733
9.  Switzerland                                               $  95,916
10. Finland                                                     $  95,095
11. Norway                                                    $  92,859
12. Singapore                                                 $  90,466
13. Canada                                                     $  90,252
14. Netherlands                                              $  83,631
15. New Zealand                                            $  76,607
16. Ireland                                                      $  75,573
17. Spain                                                        $  63,306
18. Qatar                                                        $  58,237
19. Denmark                                                  $  57,675
20. Austria                                                     $  57,450
21. Greece                                                      $  53,937
22. Taiwan                                                      $  53,336
23. Sweden                                                     $  52,677
24. United Arab Emirates                                 $  51,882
25. Germany                                                   $  49,370
26. Slovenia                                                    $  44,932
27. United States                                            $  44,911

Source: Credit Suisse Global Wealth Databook, Table 3-1

Cross-posted at Angry Bear.

A $1000/month pension equals $200,000 in savings CORRECTED

On the road today, but my wife referred me to this article by Lynn Parramore* (originally published here) on how the 401(k) "revolution" was a big bust for the middle class, something I have also written about. I just wanted to add one quick point to her discussion.

Parramore references the common recommendation that you have at least $1 million in savings to retire. This is usually related to the "rule" that you can take 4% of your savings per year and not exhaust it. That would give you $40,000 per year in income. However, with low interest rates and flat stock market performance (the S&P 500 just topped its 2000 peak this spring), even 4% may be too high as you run a greater risk of outliving your savings.

The flip side of that rule, which I haven't seen mentioned anywhere else, is that a $1000 per month pension equals at least $300,000 in savings, as $300,000 times 4% is $12,000 per year. If 4% is too high, then its value is even greater. If you can only take 3% of your savings per year safely, it would be equal to $400,000 in savings, for example. about $200,000 in savings, as it wold take about that amount to buy a $1,000 per month annuity (see Lyle's comment below).

This shows how important it is to protect pensions where they do exist, primarily at the state and local government level. They are being chipped away at varying rates, mainly but not exclusively in red states. Oregon, for example, looks set to cut state pensions in a special legislative session via reductions in cost of living adjustments similar to the idea of using a less generous inflation measure for Social Security to provide backdoor cuts.

It should be obvious that this is even more true for Social Security, since everyone is eventually eligible for benefits. That is why I have argued that expanding Social Security is the best solution to the coming middle class retirement crisis.


* Disclosure: Lynn Parramore is the editor at AlterNet who commissioned my article there on state and local government subsidies to business.

Cross-posted at Angry Bear.

U.S. Median Wealth Only 27th in World

As I discussed last week, U.S. median wealth per adult is lower than many other countries. To be exact, it comes in at #27 for 2012, at $38,786 per adult. This is more than 1/4 lower than had been reported by Credit Suisse's Global Wealth Databook for 2011. I contacted one of the authors, Professor James Davies of the University of Western Ontario, to find out the reason for the big change for the United States as well as the even bigger change for Denmark.

Professor Davies was kind enough to lay out the technical issues for me. First, of all, data for mean wealth is more reliable than median wealth. For rich countries like the United States, there is usually household balance sheet information which provides high-quality information on total wealth and, when combined with population data, wealth per adult.

Wealth distribution data is more difficult to estimate accurately, although it is known to be more unequally distributed than income for every country, as the 2012 Databook reports. The reason Denmark had such a sharp increase in its estimated median wealth is that its wealth distribution survey information was becomingly increasingly questionable, so the authors changed to a different estimation method that is not comparable with previous figures.

Finally, Professor Davies said it was unlikely that U.S. wealth per adult dropped by 1/4 in one year, but that the new lower estimate is more accurate. The research team is still working on ways to make distribution estimates more accurate, such that year-to-year changes will be more meaningful. As he wrote to me, "We haven't emphasized year-to-year changes in the shape of the wealth distributions since we are still improving our approach to that and making changes each year."

That leaves the United States still with low levels of median wealth for rich countries. as Les Leopold reported on Alternet.  In total, it trails 20 OECD countries and six non-OECD countries.

These low levels of wealth contribute, of course, to the coming retirement crisis as Americans have low levels of savings to supplement Social Security, while almost half of private sector workers have no retirement plan of any type.  A solution to the crisis will require a tremendous push politically, but otherwise millions of Americans will be condemned to poverty in their old age.

Here is the list of the top 27 countries by median wealth per adult.

Country                        Median Wealth
                                     Per Adult

1. Australia                   $193,653
2. Luxembourg              $153,967
3. Japan                        $141,410
4. Italy                          $123,710
5. Belgium                    $119,937
6. United Kingdom         $115,245
7. Iceland                      $ 95,685
8. Singapore                  $ 95,542 (non-OECD)
9. Switzerland                $ 87,137
10. Denmark                  $ 87,121
11. Austria                     $ 81,649
12. Canada                    $ 81,610
13. France                     $ 81,274
14. Norway                    $ 79,376
15. Finland                    $ 73,487
16. New Zealand            $ 63,000
17. Netherlands              $ 61,880
18. Ireland                      $ 60,953
19. Qatar                       $ 57,027 (non-OECD)
20. Spain                      $ 53,292
21. United Arab Emir.     $ 47,998 (non-OECD)
22. Taiwan                     $ 45,451 (non-OECD)
23. Germany                 $ 42,222
24. Sweden                   $ 41,367
25. Cyprus                     $ 40,535 (non-OECD)
26. Kuwait                     $ 40,346 (non-OECD)
27. United States           $ 38,786

Cross-posted at Angry Bear.

Solutions to the Middle Class Retirement Crisis

As I have noted in three recent posts, retirement security for those currently or recently in the middle class is no sure thing. 49% of the private work force has neither defined benefit (traditional pensions) or defined contribution (401(k)) retirement plans, while public sector pensions are coming under increasing attack. The United States has the highest elder poverty rate, 25% (measured as 50% of median income), of any industrialized nation bigger than Ireland. An estimated $6.6 trillion shortfall in retirement savings shows how the shift from traditional pensions to 401(k) plans has been totally inadequate to meet people's future needs.

Yet what passes for wisdom among the Very Serious People (VSP) is that we need to make a stealth cut to Social Security via a less generous inflation adjustment, while Republican plans for Medicare would shift an astounding $34 trillion in medical costs on to seniors whose income would be falling in real terms. This is a recipe for disaster.

So what do we really need to do now? Several different proposals are currently in the mix, all of which would address the income shortfall to varying degrees.

Iowa Senator Tom Harkin, chair of the Health, Education, Labor and Pensions (HELP) Committee, released a report in July 2012, "The Retirement Crisis and a Plan to Solve It." It proposes a fairly small increase to Social Security benefits (about $60 monthly to the lowest earners) and replaces the current inflation factor (CPI-Urban wage earners) not with the chintzy "chained CPI" the VSP want, but with the more generous CPI-Elderly, which recognizes that seniors consume a larger share of rapidly rising cost products, most obviously health care. The other innovation in the Harkin plan is the introduction of "USA" (Universal, Secure, and Adaptable) retirement funds which would require both employer and employee contributions, with special tax credits for low-income workers. These funds would provide what might be called a "semi-defined benefit" that could be adjusted downward if there were a prolonged stock market slump, but otherwise would provide a predictable level of benefit to its recipients.

As pension expert Jane White contends, this proposal is vague when it is not simply inadequate. She argues for a plan like the Australian "Superannuation" plan, where employers are required to put in 9% of the worker's income. Her proposal for the U.S. would be a 9% contribution for large companies and 6% for small firms. It would be portable among companies, and employees would immediately own their employer's contribution (vesting), in contrast to the current situation where that can take years. She argues that the big problem with U.S. pensions isn't that not enough people have 401(k)'s (though with 49% of private workers not having one, I'm not sure I'm persuaded), but that the employer contribution is so small. By contrast, Harkin's USA plan does not specify a level of employer contributions, which is definitely a drawback when the savings shortfall is so severe.

Of course, White's proposal still subjects retirement funds to market risk that Social Security does not, and gives Wall Street a huge new pool of funds to play with. One logical alternative is simply a dramatic expansion of Social Security. Obviously, it is already portable between employers, and companies already have to deduct FICA and Medicare taxes, so there would be no difference administratively from what firms already do.

The funding would come from an end to the cap on earnings subject to the Social Security tax, currently $113,700 for 2013. A little-known fact is that while the payroll tax is regressive (flat to the cap, then 0), the payout structure counteracts this by reducing the share of earnings replaced in retirement the greater the person's income. As the Harkin report  explains:

The replacement factor for a person’s first $767 of Average Indexed Monthly Earnings (“AIME”) is 90%. The replacement factor drops to 32% for AIME between $767 and $4,624 and 15% for AIME between $4,624 and $8,532.

 The report goes on to propose a replacement factor of just 5% for income over the current cap. It further reports that Social Security only replaces an average of 40% of people's pre-retirement income, rather than the 65-85% that is widely recommended for retirees.

This suggests an obvious solution: increase the replacement factor substantially for middle-income people. While the numbers would need to be worked out precisely, middle class workers would be much more secure with, for example, 100% replacement of their first $2000 per month in income, 50% replacement of their next $2000 per month in income, 25% for the rest up to the current cap, and then Harkin's proposed 5% over the current cap.

When I say "obvious," that's not to say that it will be easy. Republicans still want to gut Social Security, even though it is supported by most Americans. But a deeper problem is that few people realize just how severe the retirement crisis will be, first for younger Baby Boomers, but much more so for their children and grandchildren. As a first step, you should follow White's suggestion to contact Harkin's committee asking for hearings on the coming crisis. The email is Retirement_Security@help.senate.gov

But we will need many more steps to ensure that the crisis is solved in our lifetimes.

Cross-posted at Angry Bear.

$6.6 Trillion Retirement Savings Shortfall Shows 401(k)'s No Replacement for Pensions

Last week the Washington Post ran a story on the weaknesses of 401(k) retirement accounts, focusing on the the fact that 1/4 of Americans with 401(k)'s have used them to meet current income needs. Among people in their forties, the share rises to 1/3,  an astounding figure considering how close this group is to retirement. In the wake of the Great Recession and continuing job market problems, it is perhaps not surprising that 28% of 401(k) account holders presently have loans against their accounts.

As the Post delicately puts it,

Many employers have embraced 401(k) and other defined-contribution accounts as a way of helping workers save for retirement while relieving themselves of the financial risks that come with managing a traditional pension plan. In theory, 401(k) accounts are better suited to an economy in which workers are changing jobs more frequently than ever because the accounts can be rolled over from previous employers.

A more accurate way of saying this would be that employers have embraced 401(k) plans because they are less expensive than providing pensions, thereby "cut(ting) overall employee compensation," and that 401(k) plans don't take into account the stagnation of real wages, points well made by commenter "Sean2020."

Moreover, as I reported before, 49% of private sector worker have neither a 401(k) or a defined benefit pension plan. Thus, they have no supplement to their eventual Social Security benefits unless they are able to save outside of a 401(k).

And they aren't saving. At least, they're aren't saving nearly enough to maintain their standard of living after retirement. As a report from the Senate's Health, Education, Labor, and Pension (HELP) committee states, there is a  $6.6 trillion gap (methodology here) between what people need to maintain their current standard of living and what they've actually saved for retirement. This is equal to the combined assets of defined benefit pensions and 401(k) type plans, more than total state/local/federal government retirement plans, and more than twice as much as the Social Security Trust Fund. There's a reason I've been using the word "crisis"!

Total Assets

Social Security Trust Fund      $2.7 trillion (12/31/2012)
Defined benefit pensions         $2.3 trillion (9/30/2012)
Defined contribution 401(k)    $4.3 trillion (9/30/2012)
State/local gov't employee      $3.1 trillion (9/30/2012)
Federal employee retirement  $1.5 trillion (9/30/2012)
IRA's                                    $4.9 trillion (6/30/2011)


Sources: Social Security Administration; Federal Reserve, tables L-116, L-117, and L-118 (financial assets only), for DB, DC, and government employee programs; Investment Company Institute for IRAs

This gigantic hole shows that the current model, based on 401(k)'s rather than true pensions, is not working. In a future post I will discuss ways to fix the crisis.