retiree couple walking on coin staircase (Image: Shutterstock)

A new report by the U.S. Government Accountability Office identifies two trends that may significantly affect Americans’ financial security in retirement.

Income and wealth inequality among older households has increased over the past three decades, while life expectancy has been rising, albeit not uniformly across the American population.

GAO analyzed data from 1989 through 2016 from the nationally representative Survey of Consumer Finances, and data from 1992 through 2014 from the Health and Retirement Study, a nationally representative poll that follows the same individuals over time, linked to earnings records from the Social Security Administration.

Researchers divided older households into five groups, based on their wealth and income. Each year of data comprised different sets of households over time.

The analysis showed that average income rose far more for the top quintile than for the rest of the population. In 2016, household income in the top 20% averaged $398,000, compared with $53,000 for the middle quintile and just $14,000 for the bottom one.

For less wealthy quintiles, future income from Social Security and defined benefit pensions provided a relatively bigger chunk of resources in retirement for those who expected such income.

Analysis of HRS data showed that a substantial number of Americans born from 1931 through 1941 lived at least into their 70s and early 80s. GAO divided these individuals into quintiles based on their mid-career earnings.

It found that differences in income, wealth and demographic characteristics were associated with disparities in longevity: 74% of those in the top quintile were still alive in 2014, versus 52% in the bottom quintile.

Yet the upshot is that “individuals may live a long time, even individuals with factors associated with lower longevity, such as low income or education,” according to the GAO. “Those with fewer resources in retirement who live a long time may have to rely primarily on Social Security or safety net programs.”

Researchers’ analysis of HRS data showed that disparities in household income decreased while disparities in wealth persisted as older Americans aged from their 50s into their 70s or early 80s.

Higher-earning households experienced a bigger drop in income over time, possibly indicating the transition from work to retirement, the report said.

For example, GAO estimated that median income for top earners fell from mid-career levels by 53%, while the estimated median income for those in the bottom earnings group decreased by 36% over the same period.

Wealth held steady for the three bottom earnings households over the period GAO looked at, while it fluctuated considerably for the top two earnings groups.

GAO estimated that median retirement account balances and median home equity increased across all earnings groups for households that had such assets. It noted, however, that continued wealth disparities may owe to big differences in the median value of retirement accounts and home equity between higher- and lower-earning households.

The analysis also showed that white households in the bottom two quintiles had higher estimated median income, and white households in all earnings groups generally had more estimated median wealth, that racial minority households in those earnings groups.

As well, households within each earnings group that were headed by someone with at least some college education generally had higher median incomes and wealth than those headed by someone who had not attended college.