I won't get into all the dogmatic arguments that surround the massive income disparity in the US, we've discussed them in many other pieces.  We must however understand it is what it is and Wall Street has entire thesis (plural?) built around it [Sep 7, 2009: Citigroup - America; A Modern Day Plutonomy

According to new Internal Revenue Service data announced last week, income inequality in the U.S. is at its worst since the 1920s (before the Great Depression). The top percentile of wealthy Americans earned 21.2% of all income in 2005, up from 19% in 2004, while the bottom 50% of wage earners earned 12.8% that year, down from 13.4% a year earlier.

Unlike the 1930s where the market fixed the problem of income disparity to a large degree, setting up the best years for America's middle class, government interference has reinforced (IMO) the disparity this time around.  Combined with the domestic economic system and global forces - I expect it to only continue go forward; indeed as in various pieces I expect the next few decades to be an era where capital dominates and labor across the globe is set to fight amongst each other.  This is the basis of the most read entry in the history of FMMF written in 2007  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] Takeaway - put yourself in a position to own capital since they will continue to make the rules (i.e. cut the taxes for the top 1% or else we won't create jobs!), or at minimum go work in government - especially of the federal kind - which is largely shielded from the current and future reality.  I won't even bother to offer any solutions because it will get caught up in class warfare talk. :)  Instead, I will attempt to become one of the favored class - the dog eat dog capitalist! ;)

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So aside from lack of income to derive any savings for a growing body of Americans, these stories below also cross reference with another of my favorite pet peeve projects; the long term emergency that is the retirement system.  Aside from the idea of not educating Americans in the basics during high school (economics, finance, stock market, balancing a check book, how credit affects you) and then setting them off in a world where institutions are dying to take advantage of them, we also have the issues of the mass migration away from defined benefit plans (pensions) to 401ks (again there are exclusions in the public sector when pensions still reign).  Many Americans - who can least afford it in the long run - also have been raiding their 401ks or IRAs to get through the Great Recession [Jun 3, 2008: WSJ - Pinched Consumers Scramble for Cash]  A true free market ideologue will say no one deserves to retire unless they self fund it, which is fine if we live in an academic vacuum - but that is not how it would work out in the real time political environment in the US.    As these emergencies grow over the coming decades, surely more printing and borrowing by federal government will take place to help those who have decided not to save - or cannot afford to. 

The last point which shall only add to the disaster we have coming is previous to the past few decades, many Americans had a home paid off by the time they hit retirement age.  Therefore, the largest monthly expense disappeared off their needs (aside from property taxes) and the amount of income needed in retirement was far lower.  But due to the I deserve this culture, the home has instead turned into a piggy bank with many people using it to subsidize their lifestyle... and others using it to survive the global forces lapping at our shores.  Therefore the problem for the coming generation of retirees will only be increased ...

Let's look closer at the growing economic class schism, from a retirement point of view.  This is great to keep in mind as the pundits should at you Wall Street = Main Street.  I've countered that by saying Joe 6Pack with his $3000 ROTH Ira is not exactly Wall Street but it works well to speak of it when we use broad generalizations such as 60% of Americans are dependent on the stock market.  Keep in mind the data excludes defined benefit plans, which once more is now mostly focused in the public sector....

  • The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.   The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.
  • Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009.
  • Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

Now aside from those ugly numbers, is the hand in sand approach combined with the lack of financial education I cited below.  About half of Americans have not even bothered to try to guess what they actually need to retire.  I suppose it's the it will all work out in the end theory.

  • But even as fears over health care costs and job prospects mount, the survey found that only 46% of workers have tried to calculate what they need for a comfortable standard of living in their golden years.
  • People just don't want to think about this, said VanDerhei. Everybody thinks they're too young to think about it, until suddenly they're too old to do anything about it.

Note: Survey respondants were 25 and older, and yes of course those in the 25-30 year range won't have much saved for retirement, but let's not use that as a way to excuse away the reality.

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Meanwhile for that proportion of the income strate where indeed Wall Street DOES equal Main Street, things are looking much brighter.   Many in this group of course have their wealth affected much more by asset values rather than income, so the 2009 rebound in market's surely helped.

  • America's millionaires are on the rise again, according to a report issued Tuesday, after their ranks thinned out during the 2008 market meltdown.  U.S. households worth $1 million or more grew to 7.8 million in 2009, up 16% from 2008,
  • The firm's report also found that the number of ultra high-net-worth households, worth $5 million or more, jumped 17% to 980,000.
  • This is largely attributed to the stock market rebound, since other assets including real estate and private businesses have not rebounded as dramatically, said George H. Walper, Jr., president of Spectrem Group.
  • The market drop sent the number of millionaires plummeting 27% in 2008, according to Spectrem. Even now, the number of millionaires is still well below an all-time high of 9.2 million in 2007.
  • .....the influential millionaires group controls about 70% of total U.S. assets