Hard Work Isn't The Key to Economic Security

This week, I’m excited to share an essay from freelance writer Tracy Hume on the topic of retirement inequality. There’s a lot of coverage of baby boomers’ supposed “wealth hoarding,” but that doesn’t paint the whole picture of a generation. A 2025 report from Vanguard found that only 40% of baby boomers (age 61+) are on track for retirement. In Tracy’s essay, she compares her personal experiences to those of a friend and digs into all the big and small things that impacted both of their retirement plans. (Names are changed to protect the friend’s privacy.) -Lindsey

My friend Amy retired from the workforce more than 20 years ago, when she was just 41. At 65, I’m Amy’s peer in age but not in financial security. Retirement is not in my future. I will literally be working until I die if I want to stay housed, fed, and clothed.

What were the differences between us? Three factors had a big impact on our financial outcomes—but hard work wasn’t one of them.

Inherited wealth

When Amy was 10, her grandfather gave her a stock account worth $10,000. We can presume she received the money tax-free, since it was under the lifetime exemption for gifts at that time. That same year, my mother, who was 36 at the time, earned $7,800 in gross income from working full time. She was a single mom because my father walked out on our family years earlier. Based on the 1971 IRS tax tables for a head-of-household filer with two dependent children, her federal income tax liability would have been approximately $881.

More than five decades ago, a 10-year-old could receive $10,000 in transferred wealth without owing federal income tax, while a working single mother paid an effective tax rate of just over 11% on the $7,800 she earned through full-time employment. A half a century later, the only thing that’s changed is the lifetime exemption has increased to $15 million per individual ($30 million for a married couple).

Amy’s net worth at age 10 was nearly 10x the net worth of my entire family. No amount of hard work or financial literacy education can overcome a head start like that.

The tax differential

My friend Amy now lives on unearned income including interest and qualified dividends from her robust stock portfolio. (I’m not being snide. The U.S. tax code refers to any money a taxpayer receives without having to perform work or services as “unearned income.”) She graciously shared her 2024 tax bill with me: She paid an effective tax rate of around 15% on her six-figure income.

Since I am self-employed, my annual income varies a lot but generally comes in around the mid-five figures. My effective tax rate in 2024 was 47%, due to a number of reasons, including the fact that my income is earned from work, I am self-employed (which means I have to pay an additional self-employment tax), and at the time I was buying my own health insurance on the Affordable Care Act exchange.

I kept 53 cents for every dollar I earned from working in 2024, while Amy kept 85 cents for every dollar she received in income from qualified dividends.

Comparing effective tax rates is not a perfect measure. The U.S. tax code is thousands of pages long, and that complexity means there is a lot of nuance in how individual taxes are calculated. But the point is that although politicians like to characterize the U.S. tax system as progressive, the reality is that our tax code penalizes earned income (income from working) and privileges unearned income (income from dividends, capital gains, etc.).

Tax rates for capital gains were being implemented at lower levels than tax rates for earnings from work as far back as the early 1900s. Subsequent legislation tipped the scales even further in favor of investment income over wages. Today, the maximum tax rate on capital gains is 20%, while the maximum tax rate on ordinary income is nearly twice that, at 37%. Are we beginning to see a pattern?

Since the late 1980s, the maximum tax rate on ordinary income has remained relatively consistent, while taxes on wealth have declined. As my CPA said to me, “Individual earned income is incredibly expensive.”

Preferential treatment for income from assets

It’s not just the tax code that embeds “the rich get richer” in official policy.

Amy has not yet reached her full retirement age per Social Security regulations. She doesn’t need to claim her Social Security benefit to make ends meet. But she got nervous with all the talk about the Social Security program’s questionable solvency, and she decided she had better file early so she has a chance to recover what she paid in. Amy was able to file early, without penalty, because she no longer has earned income.

At 65, I would love to start collecting Social Security before my full retirement age (67). But there is a tricky little built-in punishment for working people called the Retirement Earnings Test. If I earn more than $24,480 in 2026 (or more than $1,950 in any single month), my monthly Social Security benefit will be reduced. But if I made that much or more in interest or dividends instead of earned income, there would be no reduction in my monthly benefit.

About hard work…

When Amy retired from the workforce after 21 years, her cumulative lifetime earnings at that point were $851,500. Yet today, her net worth is a healthy seven figures.

At 65, I’ve been in the workforce for 50 years and counting. My cumulative lifetime earnings to date are just under $1.6 million—nearly twice Amy’s earnings when she retired. However, when you’re not born with a financial safety net, it’s harder to hold onto those earnings for future goals such a retirement or inheritance for my own children. The money I originally earmarked for retirement savings kept me afloat following a divorce, through single parenthood, and after a job loss. As a result, my net worth today is in the low six-figures—primarily thanks to the equity in my home, which has a mortgage that won’t be paid off until I am 90. My retirement savings—outside of my home equity—is currently in the (very) low five-figures.

In our current system, generational wealth and economic policies that privilege unearned income over earned income trump hard work every time.

Don’t blame Amy

Amy didn’t create the economic infrastructure that favors wealth over work, but she did benefit from it. Her achievement of the American Dream had little to do with her earnings from work and everything to do with her ability to manage her wealth well in a system that privileges wealth over labor.

“The rich get richer” may be a historical truism, but that doesn’t mean it has to be the foundation of our tax and economic policies. That’s why America is different: We profess to believe in equal opportunity for all.

But it’s impossible to even come close to achieving equal opportunity until we take a hard look at our tax system and other financial policies and modify them to decenter wealth and recenter work. Some people believe that adding work requirements to social safety net programs like Medicaid and SNAP will serve to “make work great again.” But policies like that do nothing to correct the imbalance between how income from work and income from wealth is ultimately treated. It is not the way forward.

We can only achieve momentum by rebalancing the tax code and our economic policies so that work is fairly rewarded and income from wealth is not privileged over ordinary income. That is the only way most Americans will have any hope of achieving the American Dream.

-Tracy

Retirement inequality in the news

Tracy and Amy went on the Social Security website to access their lifetime earnings information. If you’re curious how much you’ve earned in your career, you can look it up, too. You have to log onto the site to see your details (which may require you to set up a user name and password).
Research from the Urban Institute shows the wide wealth gaps between white men and basically every one else: “The average white man between ages 58 and 62 in 2022 earned $2.9 million over his career, while the average Black man earned $1.8 million and the average Hispanic man earned $1.7 million. Women earn less overall but gaps remain: the average white woman earned $1.7 million over her career, while the average Black woman earned $1.3 million and the average Hispanic woman earned $883,000.”
In April, the National Women's Law Center published an article summarizing how important Social Security is to keeping women out of poverty as they age. Women make up over 55% of Social Security beneficiaries age 62 and older and over 62% of beneficiaries age 85 and older. At the same time, the average Social Security benefit received by retired women was $1,808 per month compared to $2,215 for retired men 65 and older (as of December 2024). This means that any proposed cuts to Social Security benefits will likely hit women harder than men.
One of the many reasons women lag in retirement savings is because they step out of the workforce to take on caregiving responsibilities, not just for children, but also for adult family members including their parents. Expert Susan Golden estimates an average lifetime economic loss of $300,000 for caregivers who reduce their hours, forgo promotions, or quit their jobs entirely. For a deeper dive into this topic, see “Tackling the Family Caregiver Squeeze” by Liz Seegert in the July 2026 issue of the Stanford Center on Longevity Magazine.
The Pew Research Center recently examined differences in perspectives on wealth and retirement based on characteristics such as race and income level. Among their key findings: “The term ‘wealth’ implies having financial resources beyond what is needed for day-to-day necessities and basic comfort. Many respondents...lack the financial means to contemplate wealth building beyond meeting their day-to-day financial needs. They might want to build greater wealth, but first they needed to establish greater financial security.”

What else we read (and watched and listened to) this week

I still subscribe to two print newspapers, but online reading is soaking up more and more of my reading time. Two of my “don’t miss” favorites are The Borowitz Report for a daily quick hit of snark that makes me laugh and Frank Bruni’s weekly column (which I receive via email, thank you very much) for his consistently beautiful and clever use of language. This week Bruni opined on “victual signaling” and how Costco is having a moment. -Tracy
I’ve continued to follow the New York Times series “Affording New York” with a lot of interest, and I appreciate the wide range of people they feature. I especially enjoyed this week’s interview with a 60-something social worker in Canarsie, Brooklyn. -Lindsey
I’m on vacation in Northern Michigan this week, so I haven’t been reading or watching much; we’re playing a lot of pool, Taboo, and Monopoly Deal. But my friend suggested the Dungeon Crawler Carl series to get me out of my reading slump, and I’ve been trying to read a little of it each day. I’ll admit I’m struggling with it! -Alicia
I signed up for a seven-day free trial of the U.S. streaming service BritBox. One week was enough time to enjoy all 10 episodes of the delightful limited series The Other Bennett Sister. I can never get enough of Jane Austen and Jane Austen-adjacent books and shows! -Tracy
My friend Laura wrote a lovely and wistful newsletter about birthdays and her recent struggle to enjoy them. The comment section is chock-full of wonderful advice. As someone who’s not always the best at celebrating birthdays, I’m taking notes! -Lindsey
Just a quick note about these links: When we can, we include gift links. Sometimes, publications don’t offer gift links (and sometimes, we run out of them!). If you don’t have a subscription to the linked publication, I recommend trying archive.is to circumnavigate the paywall.

On our radar

I don’t know if it’s because Alicia and I are both out of the city this week, or because August tends to be the dog days of summer, but there’s nothing on my radar this week! If there’s something on your radar, drop it in the comments!

TikTok of the week

@aliciatalksmoney
July 25, 2026: Do we all have job market whiplash? #economy #jobs #career
♬ original sound - Alicia Adamczyk

What else we published on The Purse this week

What it’s like to build a life in Europe after divorce.

Hopping on the social trend of expensive things that are worth it—but with a Purse twist!

A look back at everything we published in July!

Best money we spent this week

The best money I spent was $13.47 for 2.7 pounds of fresh Palisade, Colorado, apricots at the local produce center. Apricots have such a short season here (only a few weeks), but there is nothing quite as delicious as ripe, locally grown apricots that don’t have to be picked green and shipped across state lines to get to your kitchen. -Tracy
Chris and I made this scallop and brussels sprouts dinner for my family at our Airbnb one night this week, and the groceries probably cost around $120. Scallops are expensive! -Alicia
We’re upstate with friends, and I haven’t spent much beyond picking up a few groceries here and there. Freddy is going to a local day camp, and even though it’s been so rainy, he’s managed to enjoy some outdoor time, including going fishing (and catching a fish!) for the first time. While I paid for the week months ago ($500), I’m always thrilled to see him enjoy his summer activities. It takes a lot of time and money to make a magical summer! But my child is summering hard and living his best life. I’m a little jealous, TBH. -Lindsey