I read with some interest the latest report from Fidelity. The number of 401(k)-created millionaires on the firm’s platform increased by 9.5% (544,000) from the second quarter (497,000)...Buoyed by market gains, these individuals were able to reach this level of retirement savings by starting early and contributing consistently over many years.
I cheer these findings. Anyone who knows me knows that I am a fan of hard work and saving as much as possible. I have no patience or compunction for a lazy person. A good primer on that topic is the book, "Mamba Mentality" by the late Kobe Bryant.
And these results are strong arguments for auto-enrollment and auto-portability. But as the "Green" in Green Retirement reflects, I can't help but on the other side of the coin. While the stock market is minting more millionaires, what is being done to address the wealth inequality gap in the US?
Wealth inequality in the United States remains a defining and contentious issue, with profound implications for economic stability, social mobility, and democracy. This disparity is not a new phenomenon but has grown significantly over the past several decades, driven by structural economic shifts, policy decisions, and global market trends. Given that, what are we doing about it? Why should we be concerned?
The wealthiest 1% of Americans control approximately one-third of the country’s total wealth, while the bottom 50% collectively hold only about 2% of it. This concentration is even more pronounced when examining the ultra-wealthy—billionaires whose net worths often exceed the GDP of some nations. Meanwhile, many Americans struggle with stagnant wages, rising living costs, and insufficient savings, creating a stark divide between economic classes.
It is the insufficient savings that catches my eye (naturally as a 401k advisor). 63% of Americans cannot afford a $500 emergency per survey results from CNBC. How is it in a country as wealth as ours we have such a gap?
Trying to make this an apples to apples comparison between developed nations, the top 1% of earners in Europe take only 12% of the total income and the bottom 50% of earners take 22% of income. For comparison, in the United States the top 1% of earners take 20% of income and the bottom 50% of earners take 10%.
The less inequality/greater equality in Europe is attributed to the fact that Europe has not let its market economy become a market society, where market forces control other areas of society such as education, health, and wages. Examples of this are social healthcare systems and more favorable labor markets.
The causes of wealth inequality must be looked at in order to offer solutions. And offering solutions is a pointless exercise if there is not willpower behind the effort. Here are a few causes of wealth inequality (as written with half a cup of coffee on a Friday!).
Income Disparities: Income inequality is a foundational driver of wealth inequality. Wages for the top earners have skyrocketed, particularly in finance, technology, and executive roles, while real wages for middle- and lower-income workers have stagnated.
Asset Accumulation: Wealth is often built through asset ownership—stocks, real estate, and businesses. The wealthiest Americans disproportionately own these assets, benefiting from compounding growth and favorable tax treatment, such as lower capital gains rates.
Tax Policies: U.S. tax policies have historically favored wealth accumulation by the affluent. Loopholes, deductions, and estate tax exemptions enable wealth to pass across generations with minimal erosion, perpetuating inequality.
Access to Education and Opportunities: Disparities in education and access to capital limit upward mobility for lower-income individuals, reinforcing generational cycles of poverty.
Wealth inequality has broad societal implications. Economically, it stifles growth as the middle class, a key driver of consumption, faces financial strain. Politically, it fosters distrust and disillusionment, as many perceive the system to be rigged in favor of the wealthy. Socially, inequality exacerbates issues like housing instability, health disparities, and reduced access to quality education. All of these in turn place a greater strain on government assistance programs which are taxpayer-funded!
A fair question is what can be done. I think the question could be reframed as "What can be done and do we as a nation wish to do anything about it?". Again, a few off the cuff solutions for your morning coffee.
Progressive Taxation: Reforming the tax system to ensure higher contributions from the wealthiest individuals could reduce disparities. This might include raising estate taxes, closing loopholes, or implementing wealth taxes.
Investing in Education: Expanding access to affordable, high-quality education can enhance economic mobility and equip individuals with skills to participate in a changing economy.
Encouraging Asset Building: Policies like matched savings accounts or incentivized retirement plans for low-income households can help more Americans build wealth. This area in particular must be coupled with a living wage discussion.
Strengthening Labor Protections: Increasing the minimum wage, ensuring equal pay, and supporting unionization efforts could address income inequality, a precursor to wealth disparity. Why is it that in the 1960s, 68 out of 100 Americans could afford a home and now it is 43 out of 100?
Regulating Financial Markets: Addressing practices like stock buybacks or speculative trading that disproportionately benefit the wealthy could help rebalance economic power.
The Parting Glass
Wealth inequality in the United States reflects deep systemic issues, but it is not insurmountable. Thoughtful, evidence-based policy changes, coupled with a societal commitment to fairness and opportunity, can help bridge the divide. Achieving a more equitable distribution of wealth is not only a moral imperative but also essential for the nation’s long-term stability and prosperity. I am not sure about the societal commitment but I must remain hopeful.