Retirement Security Across Generations Are Americans Prepared for Their Golden Years?
A new study from The Pew Charitable Trusts, Retirement Security Across Generations: Are Americans Prepared for Their Golden Years?, examines the savings behavior of five age groups before the Great Recession. The research also explores how wealth losses during the recession affected each group’s retirement security by calculating replacement rates, or how much annual preretirement income households will have available to spend after retirement. It finds that early boomers (born 1946-1955) may be the last group on track to retire with enough savings to maintain their financial security through their golden years.
The research takes a comprehensive look at the net worth (assets minus debts), financial net worth (financial assets alone), and home equity of five generations: Depression babies, war babies, early boomers, late boomers, and Gen-Xers. The research shows that the youngest groups have less wealth than their older counterparts had at the same ages. And, although all these groups experienced wealth losses during the Great Recession, Gen-Xers took the hardest hit, losing almost half of their wealth. This lack of savings before the recession coupled with substantial losses in the downturn exposes younger groups to the real possibility of downward mobility in retirement.
"Late boomers and Generation-Xers lost significant amounts of wealth during the Great Recession, eroding their already low levels of assets," said Erin Currier, who directs Pew’s economic mobility project. "As policymakers focus on Americans’ retirement security, particular consideration should be paid to how younger generations of workers can make up for these losses and prepare for the future."
Late boomers were born between 1956 and 1965, the end of the post-war “baby boom.” Generation-Xers were born between 1966 and 1975.
The research looks at wealth gains and losses from 1989 to 2010 for all five generational groups.
- Early boomers (born between 1946 and 1955) were approaching retirement in better financial shape than the cohorts that came before them. Benefitting from both the dot-com boom and the housing bubble, early boomers in their 50s and 60s had higher overall wealth, financial net worth, and home equity than Depression babies (born between 1926 and 1935) or war babies (born between 1936 and 1945) had at the same ages, putting them in a strong financial position for retirement.
- The picture of wealth accumulation and savings for Americans born after 1955 was more mixed. Gen-Xers (born between 1966 and 1975) had higher net worth than late boomers (born between 1956 and 1965) when both were in their 30s and 40s, but neither group had as much wealth as early boomers had at the same age. Similarly, late boomers had more wealth than early boomers when both were in their 40s and 50s, but neither had as much as did war babies.
The financial net worth of younger cohorts is more tenuous. Neither Gen-Xers nor late boomers were on track to exceed the financial position of the cohorts that immediately preceded them. In their 30s and 40s, Gen-Xers lagged behind late boomers by about $6,000 by this metric, and in their 40s and 50s, late boomers lagged behind early boomers by more than $5,000.
- Both cohorts of baby boomers and the Gen-Xers have significantly lower asset-to-debt ratios than do the older groups. Over the last two decades, Depression and war babies have been shedding debt, while baby boomers and Gen-Xers have been accumulating it. As of 2010, war babies’ asset levels were 27 times higher than their debts. In contrast, late boomers’ assets were about four times higher than their debts, and Gen-Xers’ assets were about double their debts.
- All groups experienced wealth losses in the Great Recession, but Gen-Xers took the hardest hit. Both early and late boomers were negatively affected by the recession at a critical point in their lives, losing 28 and 25 percent of their median net worth, respectively. From 2007 to 2010, however, Gen-Xers lost nearly half (45 percent) of their wealth totals, an average of about $33,000, reducing their already low levels.
- Replacement rate analysis shows that the youngest cohorts will not have enough assets for a secure retirement. Early boomers may be the last cohort on track to retire with enough savings and assets to maintain their financial security through their golden years. Even after the recession, they had acquired enough savings and wealth to replace 70 to 80 percent of their preretirement income. Replacement rates have steadily declined across the cohorts studied, putting the youngest on shaky financial footing. At the median, Gen-Xers will have enough resources to replace only about half of their preretirement income; late boomers will replace about 60 percent.
Analysis for this report was conducted by John Gist, Research Professor of Public Policy at George Washington University. The data used in the report are from the Survey of Consumer Finances, collected by the Federal Reserve Board, and the Panel Study of Income Dynamics, conducted by the University of Michigan.
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