Why do late boomers have less retirement wealth than early generations?


By Alicia H. Munell

What is the outlook for Generation X and Millennials?

Late Boomers have low wealth levels, regardless of their definition: total wealth, retirement wealth, or 401(k)/IRA wealth.

Some asset components are expected to decline as a result of social security retirement age increases, the shift from defined benefit (DB) to defined contribution (DC) plans, and home price declines during the Great Recession. was However, the late-boomer generation was the first to allow workers to cover their entire career with a 401(k) plan, so rising DC balances were expected to offset the gap.

That didn’t happen. Average DC wealth for people in the middle quintile decreased from $52,300 for middle boomers to $32,700 for late boomers (see Figure 1). In fact, declines occurred for all but the top quintile.

My colleagues and I have just completed a study to understand why late Boomers have so little retirement wealth and what that pattern means for early Generation X and generations to come. We used a decomposition technique that classifies contributions from different sources. The findings point to two major factors at work: changes in household composition and the weakening link between work and wealth accumulation in the late-boomer generation.

This is not to speak of the deteriorating status of black and Hispanic households. In fact, the wealth of non-white households has increased relative to that of white households. However, black and Hispanic households still have less wealth than white households, so as their share of total households increases, the cohort’s average wealth will decrease. Similarly, a decrease in the proportion of households that are married or have a college degree lowers the average. For total wealth and retirement wealth, demographic changes accounted for 24-29% of the overall decline.

The rest were due to changes in coefficients, the most important of which was the weakening of the link between work and wealth. This pattern fits perfectly with data from other studies showing that the late-boomer generation, who were in their 40s at the time, were hit hard by the Great Recession and never recovered. Even the late-boomer generation, who had jobs after the Great Recession, had lower incomes, were less likely to participate in 401(k) plans, and had fewer assets to accumulate in those plans. For the late Boomer generation, work did not drive the accumulation of wealth as much as it did for previous generations.

The discovery could bode well for future generations of wealth holders. Changes in demographics and education are likely to continue to push the average down, but these factors were not the main causes of the decline. The big change is that the link between work and wealth accumulation for late-boomers has weakened as a result of the Great Recession. As long as declining wealth is the story of the Great Recession, some of the downward pressure on wealth holdings should abate.

Let’s hope we are right.

-Alicia H. Munell

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(Closed) Dow Jones Correspondence

05-23-23 0624ET

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