Asset Building

The one-third drop in the S&P 500 index between year-end 2007 and 2008 raises concerns about retirement security since Americans now hold more equities through their retirement plans. Those near retirement will fare the worst because they have no time to recoup their losses. Midcareer workers will fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.

Six new briefs from the nonpartisan Urban Institute show how Americans have fared during and after downturns since the 1970s, what might be ahead, and how government programs aid those in distress.

Americans save for retirement by building wealth in personal accounts, home equity, pension plans, retirement accounts and Social Security. We use data from the Survey of Consumer Finances (SCF) and methods to estimate the wealth values of Social Security and pension plans to show how wealth builds over the life cycle. We find that the typical household accrues wealth throughout the life cycle. Households in the bottom income quintile, those that did not complete high school and minorities accumulate much less wealth than their counterparts, and Social Security accounts for a large share of their preretirement wealth.

Boosting assets enables individuals and households to invest in life goals and to enhance long-term economic stability and social protections. This fact sheet, drawn from Asset Building and Low-Income Families, presents an array of key statistics.

Fast-changing labor markets and growing economic inequality mean that low-income families need more than stop-gap income support in hard times, according to McKernan and Sherraden, coeditors of the volume. Their analysis finds that building wealth—putting money in a bank account, saving in a retirement fund, owning a home—is vital for the economic security and advancement low-income families. Most government policies ignore this key goal, they point out, and some undermine it. McKernan, Sherraden, and other top experts size up the current data on assets, analyze the benefits of asset holding, and consider policy responses—making the book the first comprehensive review of asset policy.