A new brief from the Center for Retirement Research (CRR) at Boston College explores the level of wealth Baby Boomers have accumulated for retirement and analyzes why it may not be enough.
The brief is based on the previous Health and Retirement Study (HRS) and the Survey of Consumer Finances (SCF) and focuses on households ages 51 to 56. The findings also look at three wealth sources, including Social Security, defined benefit (DB) plans, and defined contribution (DC) plans, such as 401(k)s and individual retirement accounts (IRAs).
For the middle wealth quintile, the CRR found that DB wealth tended to decline, Social Security wealth stayed roughly constant, and DC wealth increased. However, the pattern came to a halt with late Boomers, whose DC wealth dropped sharply.
The CRR points to shifting demographics and the labor market experience for the decline in retirement wealth among late Boomers. While retirement wealth for Black and Hispanic households rose from mid-Boomers to late-Boomers, these households continued to have less wealth than their white counterparts. Therefore, average cohort wealth declined, said the CRR.
Turning to their labor market experiences, the CRR looks at data from the SCF, which has asked households about their income, wealth, and pension coverage every three years since 1983. Although the SCF does not follow the same households over time, the CRR said it is possible to construct “synthetic” cohorts from these triennial surveys to get a picture of employment, earnings, and wealth trends across the lifecycle.
The results show that late Boomers were not always behind in private retirement savings. Until their mid-40s, late Boomers held more 401(k) and/or IRA assets than earlier cohorts at the same age, the CRR found. Yet, that pattern changed abruptly soon after, with growth ceasing and average assets dropping. While their balances did start to grow again as they moved into their 50s, their holdings remained significantly below those of earlier cohorts, found the research.
The findings connect the 2008 Great Recession to the dip in retirement savings among late Boomers. “Their employment rate—that is, the percentage of individuals working—dropped sharply,” the CRR reported. “More importantly, the percentage of the cohort working did not rebound as the economy recovered.”
While the economic downturn ultimately impacted unemployed late Boomers, the CRR looks at data that suggests the damage went beyond those without work due to the labor market’s deterioration. “Even among working households, the Great Recession took a greater toll on late Boomers than on earlier cohorts,” the CRR wrote.
According to the research, when late Boomers reached their 40s, their average earnings flattened out and then dropped continuously after, leaving them in their 50s with earnings smaller than those of early- and mid-Boomers. Additionally, late Boomers who had a job after the Great Recession earned less, the CRR notes, were less likely to participate in a 401(k) plan, and accumulated fewer assets in those plans.
“Work, for these middle quintiles of Late Boomers, simply did not produce the boost to wealth accumulation that it had for previous cohorts,” said the CRR, “and this changing relationship was the single most important factor.”
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