Retirement Prospects for the Millennials: What is the Early Prognosis?

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Various policy developments and long-term economic, social, and demographic trends raise worrisome questions about the financial security of future retirees.  An erosion in employer-sponsored defined benefit pension coverage and the increase in Social Security’s full retirement age could shrink future benefits.  Stagnating employment and earnings for men could threaten future retirement security, because retirement benefits and the capacity to save depend on lifetime earnings.  The financial crisis, Great Recession, and collapse of the housing market in the second half of the previous decade could significantly disrupt retirement savings.  This paper assesses retirement prospects for future generations, with a special focus on the late Generation-X and the Millennial generations.  Because retirement outcomes depend on how much people earned and saved when they were younger, the analysis compares trends in employment, earnings, pension coverage, and wealth during working ages across cohorts, using data from the Current Population Survey and the Survey of Consumer Finances.  The analysis also projects age-70 incomes for future generations using DYNASIM4, the Urban Institute’s dynamic microsimulation model.

This paper found that:

  • Many recent trends threaten future retirement security, including continuing declines in men’s employment before age 55, stagnating median earnings for men, and a sharp decline in median household wealth after 2007.
  • Other trends are more encouraging. Gen-X and Millennial women worked and earned more in their 20s and 30s than now-retired women did at those ages, and Millennial men and women are much more likely to have a four-year college degree than previous cohorts.
  • Projections show that median age-70 income will be higher for Gen-Xers and Millennials than previous generations as earnings grow over time.
  • However, a larger share of retired Gen-Xers and Millennials will be unable to replace at least three-quarters of their pre-retirement earnings, according to the projections, and will see their living standards decline when they retire.

The policy implications of this paper are:

  • How employment, earnings, and savings patterns evolve over the next three decades will shape Millennials’ retirement incomes.
  • Policy choices regarding retirement programs, especially strategies to address Social Security’s long-term financing gap, will significantly affect the retirement security of future generations.