{"id":415,"date":"2020-11-30T08:57:14","date_gmt":"2020-11-30T08:57:14","guid":{"rendered":"https:\/\/www.radiofree.org\/?p=129015"},"modified":"2020-11-30T08:57:14","modified_gmt":"2020-11-30T08:57:14","slug":"the-rich-are-cheering-wall-streets-latest-records-americans-of-modest-means-are-draining-401ks-2","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2020\/11\/30\/the-rich-are-cheering-wall-streets-latest-records-americans-of-modest-means-are-draining-401ks-2\/","title":{"rendered":"The Rich are Cheering Wall Street\u2019s Latest Records. Americans of Modest Means are Draining 401(k)s"},"content":{"rendered":"
\n

Photograph by Nathaniel St. Clair<\/p>\n<\/div>\n

The all-time record highs<\/a> that Wall Street has registered this week have given some Americans \u2014 the nation\u2019s already rich \u2014 considerable cause for celebration.<\/p>\n

And the rest of the nation? Tens of millions of Americans are paying precious little attention to the chirpy tale of Wall Street\u2019s ticker. The simple reason: They own no stocks at all. Millions of other Americans who do<\/em> own stocks don\u2019t see any reason to celebrate either. They\u2019re finding themselves forced, amid pandemic economic collapse, to start selling the stocks that make up the bulk of their retirement savings.<\/p>\n

How best to start understanding this story? The best place to begin: The latest numbers on stock ownership from the Federal Reserve. Fed researchers have been tracking who exactly owns the stocks that trade every business day on Wall Street ever since 1989.<\/p>\n

Back nearly 30 years ago, in 1992, the share of stock nationally that belongs to America\u2019s poorest half of households hit an all-time high. That \u201chigh\u201d amounted to all of a miniscule 1.6 percent.<\/p>\n

How much of America\u2019s stock wealth does the bottom 50 percent hold these days? At the end of this past June, the most recent Federal Reserve data point available, the nation\u2019s poorest half held less than 1 percent<\/a> of the nation\u2019s stock holdings, just 0.6 percent.<\/p>\n

The nation\u2019s poorest 90 percent<\/em>, all combined, now hold just 11.8 percent of the nation\u2019s stocks.<\/p>\n

Numbers like these help explain why massive numbers of Americans didn\u2019t rush out onto the streets to cheer earlier this week when two top Wall Street benchmarks, the Dow Jones industrial average and the S&P 500, hit their own all-time record summits<\/a>. Shares of stock \u2014 either held directly or through mutual funds \u2014 make up just 2.3 percent of the total assets of households in the bottom 50 percent and a mere 7.6 percent of the assets the rest of the bottom 90 percent hold.<\/p>\n

America\u2019s richest 1 percent, on the other hand, have plenty of reason to celebrate Wall Street records. Stock holdings make up over 40 percent of top 1 percent household wealth. These 1 percenters, overall, hold 52.4 percent<\/a> of the nation\u2019s stock, a share almost five times greater<\/em> than all the stock that households in the bottom 90 percent hold.<\/p>\n

This top 1 percent share has been steadily increasing. Since 1989, the year the Fed started keeping track, the top 1 percent share of the nation\u2019s stock holdings has jumped<\/a> 22 percent. The bottom 90 percent share has dropped 33 percent.<\/p>\n

What does that mean in actual dollar terms for average American households? Fed research conducted<\/a> last year found that 55.8 percent of households in the middle 20 percent of U.S. income-earners hold stocks. The median \u2014 most typical \u2014 value of these stocks for those average Americans who held them: just $15,000, down $1,000 from three years earlier.<\/p>\n

And that value is shrinking this year as increasing numbers of Americans start taking advantage of changes Congress made this past spring \u2014 via the Covid-19 relief legislation \u2014 that let economically reeling Americans under age 59 1\/2 withdraw dollars out of their 401(k), IRA, and other retirement accounts without having to take the standard 10 percent early withdrawal penalty.<\/p>\n

The Covid-19 calamity, notes<\/a> Denver CPA Celeste Schimmenti, \u201chas forced many Americans to exhaust their savings and emergency funds,\u201d and that\u2019s left them agonizing over whether they\u2019ll need \u201cto dip into retirement savings to cover current expenses.\u201d But dipping into retirement accounts \u2014 selling the stocks in these funds \u2014 can have a devastating impact on future retirement security. Withdrawing $10,000 from a 401(k) today can cost<\/a> a 35-year-old $100,000 by the time retirement comes around.<\/p>\n

The rules around 401(k)s and other retirement accounts have traditionally used penalty fees to discourage cashing out account holdings. In Covid-19 America, with withdrawal penalty fees now off the table for this calendar year, Americans have begun making those withdrawals anyway.<\/p>\n

The nation\u2019s largest 401(k) provider, Fidelity Investments, reports<\/a> that 5.2 percent of its clients made withdrawals from the start of April through October. Vanguard, another major provider, says the Covid crisis had 4.5 percent of those eligible making withdrawals. T. Rowe Price computes a 7 percent 401(k) raiding rate.<\/p>\n

Some analysts are claiming that numbers like these present no real cause for concern. Americans \u201cundeterred by the Covid-19 economic downturn,\u201d writes<\/a> Ted Godbout for the national association of retirement plan advisors, have \u201coverwhelmingly continued saving for retirement.\u201d<\/p>\n

But the trend lines are all going the wrong way. The number of Americans cashing out the stock they hold in their retirement accounts is rising as the income support for average Americans provided through the CARES Act expires. Through May, for instance, fewer than 2 percent of Vanguard 401(k) holders were withdrawing funds. By the end of the summer, that rate had more<\/a> than doubled.<\/p>\n

By the end of the year, the Employee Benefit Research Institute\u2019s Lori Lucas estimates<\/a>, 10 percent of Americans with 401(k)s could be raiding their retirement futures.<\/p>\n

And those who need Covid economic relief the most \u2014 gig and other low-income workers who\u2019ve lost jobs or hours to the pandemic \u2014 don\u2019t have retirement accounts to withdraw from. Overall, the Economic Policy Institute reported<\/a> last year, \u201cnearly half of working-age families have nothing saved in retirement accounts.\u201d<\/p>\n

On Wall Street, that reality still doesn\u2019t particularly matter. Let the good times keep rolling.<\/p>\n\n

This post was originally published on Radio Free<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

Photograph by Nathaniel St. Clair The all-time record highs that Wall Street has registered this week have given some Americans \u2014 the nation\u2019s already rich \u2014 considerable cause\u2026<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22,266,4],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/415"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=415"}],"version-history":[{"count":1,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/415\/revisions"}],"predecessor-version":[{"id":416,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/415\/revisions\/416"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=415"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=415"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=415"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}