Early Boomers May Be Last Generation on Track to Retire Well

Gen X, late boomers risk ‘downward mobility’ in retirement

An analysis of income data by The Pew Charitable Trusts found that younger cohorts of investors are more likely to experience downward economic mobility in their retirement than older investors. Generation X is especially at risk to suffer a downgrade in lifestyle after retirement.

“The two youngest cohorts studied are on shaky financial ground,” Diana Elliott, research manager for the economic mobility program, said on a media briefing covering the results. “Generation X is undoubtedly in worse shape.”

The report analyzed data from the Survey of Consumer Finances and the Panel Study of Income Dynamics to compare trends in wealth and project retirement replacement rates for five age groups: Depression babies, born between 1926 and 1935; war babies, born between 1936 and 1945; early boomers, born between 1946 and 1955; late boomers, born between 1956 and 1965; and Generation X, born between 1966 and 1975. Generation Y was excluded from the report to focus the analysis on people in their prime working years between 1989 and 2010, Erin Currier, director of the economic mobility project, said on the call.

Earlier boomers were in better financial shape in 2010 than either of the older cohorts. Investors born between 1946 and 1955 benefited from the dot-com boom and the housing bubble, and consequently had higher financial net worth, overall wealth and home equity in their 50s and 60s than war babies or Depression babies did at the same age.

In their 30s and 40s, net worth for Gen X was higher than late boomers at that age, but both groups had lower levels of wealth than earlier boomers. In terms of financial net worth, which looks at savings accounts and retirement accounts without including nonfinancial assets, neither Gen X nor late boomers are on track to exceed older cohorts.

Furthermore, Gen X and both boomer cohorts are accumulating debt rather than eliminating it like the oldest cohorts. The analysis found that as of 2010, war babies’ assets were 27 times higher than their debt. Late boomers assets were four times higher than their debt, and Gen X had just double.

The analysis also looked at the specific effects of the recession on different cohorts’ financial situations. All groups took a hit, but it was felt most keenly by Gen X. The report noted that the boomer cohorts were hit at a “critical point” in their lives and lost 28% and 25% respectively. Gen X, however, lost 45% of their wealth between 2007 and 2010.

“Generation X experienced the largest percentage decline in median net worth,” Currier said. “They already had low levels of wealth to begin with.”

In fact, Pew found that even after the recession, early boomers still had enough savings to replace between 70% and 80% of their preretirement income. Gen X is on track to replace only half, and late boomers may be able to replace about 60%.

The report noted that retirement preparedness has become more uneven within cohorts, too. A comparison of the most and least prepared households found that the “typical retiree,” one at the median replacement rate, had a replacement rate between three and six times higher than those who were least prepared. The most prepared retirees had a replacement rate about 12 times higher than the median. “Importantly, however, this growing inequality in retirement readiness is due to median replacement rates declining, not to the highest rates rising,” according to the report.

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