What Happened to Late Boomers’ Retirement Wealth?

Late Boomers have surprisingly low levels of retirement wealth compared to earlier cohorts. A decline in some wealth components had been expected as a result of the rise in Social Security’s Full Retirement Age and the shift from defined benefit to defined contribution plans. But increasing 401(k)/IRA balances were predicted to offset the gap, since Late Boomers were the first generation where workers could have spent their whole career covered by a 401(k) plan. That did not happen: retirement wealth dropped across all but the top quintile. Why do Late Boomers have so little wealth? And what do the patterns imply for Early Gen Xers and subsequent cohorts? This brief, which is based on a recent paper, attempts to answer these questions using the Health and Retirement Study (HRS) to look at actual patterns of wealth accumulation by cohort and the Survey of Consumer Finances (SCF) to gather insights on the experience of Late Boomers over their work life.1 The HRS also serves as the basis for a decomposition exercise to evaluate the role of the various factors that depressed Late Boomer wealth. The discussion proceeds as follows. The first section documents the decline in wealth for Late Boomers and explores whether variation by race and ethnicity might have contributed. The second section looks at an alternative factor that might explain the drop in Late Boomers’ wealth – namely, their labor market experience in the Great Recession. The third section uses a decomposition technique to sort out the relative contribution of shifting demographics versus labor-market experience in explaining the drop in wealth. The results show that two factors were at play – a shift in the population towards lower-wealth households and, more importantly, a weakening of the link between work and wealth accumulation. The final section concludes that to the extent that the decline in wealth is a Great Recession story, some of the downward pressure on wealth holdings should abate – potential goods news for younger cohorts.