Why Do Late Boomers Have So Little Wealth and How Will Early Gen-Xers Fare?

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Due to changes in the retirement landscape in recent decades, Late Boomers (who are now nearing retirement) would be expected to have less wealth from traditional pensions, Social Security, and housing, but higher 401(k)/IRA assets compared to Mid Boomers at the same age.  Strikingly, though, Late Boomers have seen a drop in their 401(k)/IRA assets.  The questions are why is their 401(k)/IRA wealth lower and what do the patterns mean for younger cohorts.

The paper found that:

  • About a quarter of the drop in wealth was due to a shift to households with lower average 401(k)/IRA balances – a rising share of Black and Hispanic households and a declining share of households that are married and have college degrees.
  • Most of the remaining decline is due to a weakened link between work and wealth – even Late Boomers who had a job after the Great Recession earned less, were less likely to participate in a 401(k), and accumulated fewer assets when they did.
  • These results have some potential good news for Gen-Xers, given that economic factors linked to the Great Recession, which should abate over time, were the main culprit.

The policy implications of the findings are:

  • In considering changes to Social Security, it is important to recognize the that the program has already been cut by the increase in the Full Retirement Age.
  • Similarly, other sources of retirement income – mainly 401(k)/IRA saving – have not been increasing.
  • Lower wealth households need some way to automatically save for retirement in addition to Social Security.