A lot of people get arrested and convicted in the United States. Those interactions with the criminal justice system cast long financial shadows. This is true for retirement savings as calculations based on recently released Federal Reserve data show. The numbers indicate that people who have been arrested and convicted end up with lower retirement savings than people who have not been taken into custody.
A recent Federal Reserve issue of the Survey of Household Economics and Decisionmaking on people’s economic situation, including questions on whether they have been taken into police custody, convicted and served time. The same SHED survey also asked questions about retirement savings.
Interactions with the criminal justice system are fairly widespread. It is necessary to combine data years to make sure that sample sizes are large enough. In 2023 and 2024, 13.7% of adults said that they had been taken into custody in the past, 6.0% said that they had been convicted and 1.8% of people indicated that they served time.
The respective shares of people are higher among Black and Latino populations than for white populations, with 17.3% of African Americans and 17.9% of Latinos in 2023 and 2024 saying that they had been taken into custody, but only 12.5% of white adults said that this was the case. A lot of these racial differences are not explained by differences in criminal behavior, but rather, are the result of structural biases against Black and Latino adults, argues a 2022 Center for American Progress report.
These interactions with the criminal justice system make it more difficult for people to save for retirement. For one, those who have a criminal record will face more labor market obstacles than those without a criminal record. They often work in less stable jobs and receive lower wages. They will have a harder time qualifying for retirement benefits and have less money to put away towards retirement.
People who have been arrested and convicted incur legal fees, but also face other economic challenges, for instance, in renting a house or apartment. They face higher costs, impeding their retirement savings and necessitating more liquidity in their retirement savings, for example, by withdrawing money pre-retirement or taking out loans on their retirement accounts. All of these factors could make it less likely that people have retirement accounts to begin with and more likely that the savings in those accounts grow more slowly.
Earlier data gathered by the Fed already showed differences in retirement savings by interactions with the criminal justice system. Specifically, 48.4% of people that did not have a family member in prison or jail had any retirement savings in 2019, while this was the case for only 37.7% of people with an incarcerated family member.
Recent Federal Reserve data for 2023 and 2024 provide additional details on the link between interactions with the criminal justice system and retirement savings. The data allow for a separation of respondents into three distinct groups: those who were taken into police custody and were convicted, those who were taken into police custody, but were not convicted, and those who were not taken into police custody. The SHED also includes a number of key measures for retirement savings. It is, for example, possible to create one indicator whether people have any retirement benefit – a 401(k)-type account, an IRA or a DB pension. It is also possible to create another indicator whether people increased the liquidity in their retirement savings by borrowing from their retirement accounts, withdrawing money from a retirement account or reducing their retirement account contributions. These actions all slow the growth of retirement savings as people need more liquidity.
People who had any interactions with the criminal justice system fare worse in terms of retirement savings (see figure below). The share of people who worked for somebody else and who were at least 25 years old with a retirement benefit is lower among those who were convicted (65.6%) than was the case for people who were taken into custody, but who were not convicted (76.5%), which was in turn much lower than the share of working people who were never taken into custody (84.5%). Having been convicted, regardless of whether the person served time or not, reduces the chance of having a retirement benefit by almost 19 percentage points, compared to somebody who had never been taken into custody.
And, those who were convicted also need more liquidity in their retirement accounts (see figure above). In particular, Fed survey data show that 25.6% of those who were working for somebody else, were at least 25 years and had a retirement account also took out a pension loan, withdrew money before retirement or lowered their retirement plan contributions in 2023 and 2024. The respective shares for the other two groups were 16.2% and 16.0%. Having been convicted thus also goes along with a greater need for liquidity in retirement accounts, which could slow the growth of retirement savings.
Arrests and convictions affect a substantial share of Americans and can cast a long shadow of financial insecurity over people’s lives. This includes negative correlations between arrests and convictions, on the one hand, and retirement savings, on the other hand– leaving this group less likely to have a retirement plan.
For a detailed review of the relevant literature on the economic effects of interactions with the criminal justice system see Christian Weller, Akua Amaning, and Rebecca Vallas (2022). America’s Broken Criminal Legal System Contributes to Wealth Inequality. CAP Report. Washington, DC: Center for American Progress. For additional information on the link between criminal justice interactions and retirement savings see Christian Weller, Dania Francis and Michele Tolson (2024). Retirement Wealth by Race and Ethnicity: Differences, Trends and Contributing Factors. SOA Research Report. Chicago, IL: Society of Actuaries.
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