Retirement

$75,000 Is Americans’ New Financial Health Barometer, Study Finds

By Richard Eisenberg, Next Avenue

Although the Conference Board Index says consumer confidence in the U.S. is markedly higher than it was in 2020, money struggles are serious for many households with incomes less than $75,000, The Financial Well-Being 2024 survey of 5,000 U.S. adults from Assurance IQ has found.

Financial concerns are especially weighty for Americans ages 50 and older with incomes less than $75,000 (roughly the U.S. median household income), according to internal survey data that Assurance IQ, a Prudential Financial
PRU
subsidiary, provided to Next Avenue.

Nearly half (45%) are worried their family wouldn’t be able to maintain their standard of living if they were to die.

“This could lead to ongoing cycles of financial hardship for these families as unexpected costs get passed on to future generations,” The Financial Well-Being 2024 report said.

Findings From The Financial Well-Being Report

The survey found that last year:

  • 57% of respondents ages 50 and older with incomes less than $75,000 struggled to pay bills;
  • 38% couldn’t afford their health insurance deductibles;
  • 36% paid a bill late; and
  • 31% avoided medical care due to cost.

If faced with a future unexpected medical expense, 28% said they wouldn’t be able to cover it without affecting their ability to pay monthly bills.

Deteriorating Balance Sheets

Tim Ogden, managing director of NYU Wagner’s Financial Access Initiative research center, said Covid-19 relief helped put a lot of cash into people’s pockets and pushed down their expenses temporarily. But that relief has ended.

Household balance sheets for lower- and middle-income people are worsening, Ogden noted, due to inflation and rising interest rates on credit cards (up to 36%, according to WalletHub) and personal loans.

“Increased interest rates radically affect somebody’s budget really, really quickly,” he said. “When you’re living on thin margins, this gets really hard to deal with.”

The Money Steps Some Aren’t Taking

The Assurance IQ study also found that more than a third of people aged 50 and older earning less than $75,000 are not taking essential steps to protect themselves and their families.

Just 46% have drafted a will and only 36% have bought life insurance. Most who bought life insurance have death benefits of less than $50,000.

“When somebody is trying to figure out how they’re going to spend their money all month long and struggling with that, the idea of making a will or having life insurance can just feel overwhelming,” said Jennifer Gilbert, director of customer marketing at Assurance IQ. “Your mental capacity is going toward day-to-day living.”

Managing Day-To-Day Finances

The Assurance IQ study was inspired in part by the U.S. Financial Diaries. That program, from NYU Wagner’s Financial Access Initiative and the Center for Financial Services Innovation, tracked 235 low- and moderate-income households to see how they managed their day-to-day finances.

Ogden said he wasn’t surprised by Assurance IQ’s findings because incomes are often highly volatile for these households. Many are either hourly workers with varying hours or in jobs that aren’t steady.

“Most of what we talk about in financial planning and budgeting starts from the assumption that you know how much money you have and how much you’re going to earn. But if you don’t know that, how do you create a budget?” Ogden said.

When Ogden’s researchers tracked finances of lower- and middle-income Americans, they found the households were sometimes saving, but for something that was going to happen in a couple of months from now, not for something that was going to happen a couple of years from now.

As Ogden noted, when income is volatile, trying to plan for future expenses, like retirement costs, “is really difficult when you’re worried about how much I need to save up for the six-month car insurance payment.”

Online financial planning questionnaires, he said, typically assume you know your future income and spending needs.

A 2024 Bankrate survey said 15% of Baby Boomers (people ages 60 to 78 and 22% of Gen-Xers (those ages 44 to 59) have no emergency savings. One-fifth of Boomers and about a third of Gen-Xers have emergency savings that would cover less than three months of living expenses.

Where Are The Financial Advisors?

One reason some people with incomes less than $75,000 aren’t taking steps to bolster their finances: “The financial services industry has often overlooked lower-income households — households that need their support most,” the Assurance IQ report said, adding that this lack of guidance can spell disaster for them.

“It is a gap we hear from a lot of our customers that they weren’t able to find help or didn’t know who to go to for help,” said Gilbert. Jargon and financial products like life and health insurance can be intimidating, she added.

Many financial advisors charge their clients a fee based on assets under management; fees typically are around 1% of the assets the advisor will manage.

Consequently, there’s an incentive for these advisors to work with people with substantial assets. The amount the money pros will earn from them is higher than for those with smaller asset levels.

Some advisors, however, do take lower- and middle-income clients either by charging hourly fees or offering services pro bono.

How Some Employers Are Helping

This year, employers can enroll employees in emergency-savings accounts linked to their 401(k) retirement accounts if the workers’ incomes are less than $150,000. This benefit — known as a “sidecar account” or Pension Linked Emergency Savings Account — comes out of the 2022 Secure 2.0 law.

That law also allows employees a $1,000-per-year penalty-free distribution from their 401(k)s starting in 2024.

But few employers are stepping up.

Only 0.8% of retirement plan sponsors surveyed by the Plan Sponsor Council of America in January 2024 said they plan to implement sidecar accounts and just 10% expect to permit penalty-free withdrawals. Just over 2% said they’ll offer both.

Job Insecurity Is A Big Hurdle

Some plan sponsors said the new benefits took too much time or cost too much to set up and manage and some opposed linking emergency savings to retirement savings.

A Wharton Pension Research Council/Brookings Institution paper noted that freestanding emergency savings accounts have a major advantage over sidecar accounts. “They can be made available to all employees regardless of whether their employers offer retirement plans,” it said.

Research by the Employee Benefit Research Institute found that roughly three-quarters of employers with 500 or more workers last year either offered or planned to offer hardship or emergency assistance programs to workers.

Some lower- and middle-income workers may be leery to sign up for these plans, Ogden said, because they worry about how long they’ll be able to hold onto their jobs.

The Startups Helping People Save More

A few startups are helping lower- and middle-income people save for emergencies and retirement.

The SaverLife app lets users link their bank accounts to earn points when amassing savings and then redeem them for prizes. It also offers budgeting tools.

The Canary and Commonwealth enterprises partner with employers and financial services firms to set up employee emergency relief funds and savings programs targeted for lower- and middle-income people.

Change Machine offers financial coaching training and tools for low-income communities.

“These types of organizations are focused on how we change the way we help people based on the reality of their financial situations,” said Ogden. “But we’re not there yet.”

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