The Mysterious Retirement Weakness of Late Boomers

“Thereafter, however, that pattern changed abruptly. Growth ceased and average assets actually dropped,” the researchers explain. “While their balances did start to grow again as they moved into their 50s, their holdings remained significantly below those of earlier cohorts.”

As Munnell, Quinby and Chen highlight, the late boomers were in their 40s during the Great Recession, and the economic calamity appears to have hit them particularly hard. Their employment rate dropped sharply, but more importantly, the percentage of the cohort working did not rebound as the economy recovered.

“Thus, one explanation for the low level of retirement assets is simply that many late boomers ended up permanently unemployed, unable to contribute to their 401(k)s, and likely having to drain accumulated retirement assets to support themselves,” the researchers note. “But a closer look at those who were employed suggests that the damage went beyond the unemployed.”

The Depth of the Damage

As noted, even among working households, the Great Recession appears to have taken a greater toll on late boomers than on earlier cohorts.

According to the CRR researchers, when late boomers reached their 40s, their average earnings flattened out and then declined continuously thereafter, leaving them in their 50s with earnings generally well below those of early and middle boomers.

“The late boomers’ lower earnings were accompanied by a decline in the share of these households participating in a 401(k) plan,” the brief points out. “Even for those working households who were participating, the trajectory of their 401(k)/IRA balances changed dramatically after the Great Recession.”

In short, the brief concludes, the decline in 401(k)/IRA balances for the late boomers reflects not only the unemployment caused by the Great Recession but also the deterioration of labor market outcomes for those who stayed employed.

The researchers say the “ultimate question” is how much of the deterioration in the retirement wealth of late boomers was due to their worse labor market experience as opposed to the shifting demographics described earlier. They use a series of regression analyses in an attempt to derive an answer.

The Demographic Component

The regression calculations show average retirement wealth for middle boomers is $350,400, compared with $299,700 for late boomers — or a difference of $50,700. According to the researchers, the results indicate that the higher share of Black households among late boomers compared to middle boomers is responsible for $600 of the total decline in retirement wealth for late boomers. For Hispanic households, the comparable number is $2,700.

Late boomers also saw a drop in the share of households that were married and those headed by college graduates, and these factors account for $4,300 and $5,900, respectively, of the decline in their retirement wealth.

“On the economic side … late boomers worked less than middle boomers when they were ages 42 to 49,” the analysis explains. “This reduction in work results in $1,300 less in retirement wealth. In all, the change in the demographic characteristics and work activity between middle to late boomers explains $14,800 of the decline in retirement wealth, or 29% of the total decline.”

Other regression results cited in the brief indicate that the most important factor in the whole analysis is the change in the coefficient for the percentage of household years worked among those with a head ages 42 to 49.

“Specifically, this link between work and wealth accumulation declined significantly for late boomers compared to middle boomers, reducing their retirement wealth by $55,600 more,” the analysis posits.

The Bottom Line

As summarized in the new issue brief, the bottom line for these results is twofold.

“First, the decomposition analysis brings home the fact that one cannot look at the trends in average wealth by households without considering the demographics,” the brief claims. “As long as non-white households earn less, inherit less, and therefore accumulate less assets than white households, any increase in their share of the total population will bring down any measure of average wealth.”

The second big implication is that the weakened link between work and wealth meant that even late boomers who had a job after the Great Recession earned less, and they were less likely to participate in a 401(k) plan and accumulated fewer assets in those plans.

“Work, for these middle quintiles of late boomers, simply did not produce the boost to wealth accumulation that it had for previous cohorts, and this changing relationship was the single most important factor,” the analysis concludes.

In this limited sense, the Great Recession story is actually good news for future cohorts, as the expected link between work and retirement wealth can be expected to reassert itself over time.

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