Much ink has been spilled—literally and virtually—about baby boomers and the challenges they face heading into retirement.
Now, research by J.P. Morgan Asset Management shows that boomers quadrupled their aggregate net worth since the late 1980s, thanks to an extended period of economic growth and stability during their peak earning years. According to the research released Wednesday, the median boomer household owns approximately $253,000 of assets, about 75% of which are nonfinancial, predominantly residential properties.
The paper looks at how baby boomers’ balance sheets got where they are today, which assets account for the dramatic growth in their wealth and what younger generations will have to do if they hope to reach retirement with a comparable level of wealth.
“We refer to this massive accumulation of assets—and the impact it is likely to have on the economy, markets and the retirement prospects of multiple generations—as baby boomers’ financial exceptionalism,” Ben Mandel, global strategist in J.P. Morgan’s multi-asset solutions department and co-author of the paper, said in a statement.
Boomers are entering retirement much better off than their parents, and likely much more so than the next generation, Mandel said.
Consider that the median household net worth for the young-to-middle-aged members of Generation X has significantly declined compared with that for similar households of two decades ago.
According to the paper, those 35 to 44 years old today have a median net worth of approximately $47,000, compared with $102,000 for those of a similar age 25 years ago.
The paper said lower current income growth and expected asset returns implied that the savings rate necessary for younger households to match the breadth of boomer balance sheets was enormous.
This will force younger generations to modify saving and investment behaviors and adjust their wealth expectations accordingly.
Still, baby boomers aren’t off the hook. They will not be able to rely solely on financial assets, which make up only one-third of the growth of their total assets, to support their current levels of consumption expenditure in retirement.
Indeed, the paper said, “The sale of residential real estate is a likely outcome for many households, representing, in our view, an inexorable long-term headwind for the U.S. housing market.”