Widespread Interactions With Criminal Justice System Cast Long Shadow On Retirement Savings

A lot of people get arrested and convicted in the United States. Those interactions with the criminal justice system cast long finacial shadows. This is true for retirement savings as well as calculations based on recently released Federal Reserve data show. 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 survey on people’s economic situation includes a series of questions on whether people have been taken into police custody, convicted and served time. The same survey, the Fed’s Survey of Household Economics and Decisionmaking (SHED) also asks 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 for Black and Latino people than for White people, 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.

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 will work in less stable jobs and receive lower wages. This means that they will have a harder time qualifying for retirement benefits and have less money to put away towards retirement. In addition, people who have been arrested and convicted will have 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 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 retirement 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, 25.6% of those working for somebody else who were at least 25 years old and who 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.

A substantial share of Americans are arrested and convicted. Convictions can cast a long financial shadow over people’s lives. This includes negative correlations between arrests and convictions, on the one hand, and retirement savings, on the other hand. Those who have been arrested and convicted are much less likely to have any retirement plan, for instance. Financial insecurity follows criminal convictions for some time.

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.