With the gradual shift in recent decades from defined benefit plans to 401ks, you would think younger Boomers would have more retirement wealth in 401ks than their earlier cohorts at the same ages.
But you’d be wrong, according to a new brief from the Center for Retirement Research at Boston College (CRR) written by Anqi Chen, Wenliang Hou, and Alicia H. Munnell.
Not surprisingly, the Late Boomers—who were ages 51-56 in 2016—show predicted declines in DB plans and Social Security in the University of Michigan’s Health and Retirement Study numbers, but very surprisingly, also a drop in 401k and IRA assets. The brief says the drop is “alarming” given that Late Boomers would have spent “the majority of their careers in a defined contribution world.”
This is even after seven years of a bull market, and despite the fact that fewer Late Boomers have pensions and therefore need to accumulate more in 401ks and IRAs to achieve the same level of retirement security as older Boomers.
The brief, titled, “Why Do Late Boomers Have So Little Retirement Wealth?” identifies a turn in the fortunes of Late Boomers during the Great Recession, when a significant share stopped working.
But lack of employment does not explain the whole problem, so the brief digs deeper to find that after the Great Recession Late Boomers had lower earnings, less 401k participation, and flat 401k balances, ending up well below earlier cohorts.
The final section concludes that the Late Boomers’ low 401k/IRA wealth can be somewhat explained by particularly high levels of unemployment during the Great Recession, which coincided with the Late Boomers’ 40s, more reliance on lower-paid jobs when they re-entered the labor market, and more importantly, the percentage of the those not working did not rebound as the economy recovered.
So one explanation for the low level of retirement assets is simply that many Late Boomers ended up permanently unemployed, unable to contribute to their 401ks and likely had to drain accumulated retirement assets to support themselves.
Why they were so hard hit, why they were unable to recover, and the fate of future cohorts remain open questions.
The authors say the 2019 The Federal Reserve’s 2019 Survey of Consumer Finances (SCF), expected to be released in September, should provide additional insights that may provide answers.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
