Coming to Gen-Xers in retirement: Downward mobility

When the Great Recession hit in 2007, it affected the entire economy and its pain was felt across the generations. But in the years since, recovery of personal wealth has been uneven. Early boomers — those born from 1946 to 1955 — are on track for a secure retirement that will surpass that of earlier generations, according to a new study released by the Pew Charitable Trusts on Thursday. Benefiting from both the dot-com boom and the housing bubble, early boomers had higher overall wealth, financial net worth and home equity in the years preceding the Great Recession than either Depression Babies (born from 1926 and 1935) or War babies (born between 1936 and 1945) had at the same ages, putting these early boomers in a strong financial position for retirement. Unfortunately, the picture of wealth accumulation and savings for Americans born after 1955 is more mixed. Neither late boomers (born from 1956 to 1965) nor Gen-Xers (born from 1966 to 1975) had stockpiled as much wealth in their 30s and 40s as early boomers had at the same age. Much of the problem of these two younger cohorts is due to debt. Over the past two decades, Americans born during the Depression or World War II have been shedding debt, while boomers and Gen-Xers have been accumulating the stuff. As of 2010 — the end point of the Pew study — war babies' asset levels were 27 times higher than their debt. In contrast, later boomers' assets were about four times higher than their debt and Gen-Xers' assets were about double their debt. All age groups lost wealth during the Great Recession, but Gen-Xers took the biggest hit, according to the study. Both early and late boomers were negatively affected by the recession at a critical point in their lives as they were in their peak earning years saving for retirement. Early boomers lost 28% of their median net worth due to the stock market downturn and housing bust from 2007 to 2010. Late boomers lose 25% of their median net worth. But Gen-Xers were hit the hardest, losing nearly half of their wealth — 45% — reducing their already low level of accumulated savings. They also experienced the largest percentage loss (27%) in home equity between 2007 and 2010. Despite the recession, early boomers have acquired enough savings and wealth to replace 70% to 80% of their pre-retirement income, according to the study. The analysis calculates replacement rates using a comprehensive measure of wealth that includes net worth plus the value of annuitized assets such as pensions and Social Security benefits. But early boomers may be the last generation on track to exceed the wealth of those that came before them with enough savings and assets to maintain their financial security through their retirement, the study concluded. At current savings rates, late boomers will be able to replace only about 60% of their pre-retirement income at the median and Gen-Xers will have enough resources to replace only about half of their pre-retirement income. Because these are medians, the data suggest that at least half of late-boomer and Gen-Xer households fall below these already low levels and may be facing an insecure retirement. “Gen-Xers are the least financially secure and the most likely to experience downward mobility in retirement,” the study found. “As policymakers focus attention on Americans' retirement security, particular consideration should be paid to helping the youngest cohorts change course and prepare for financial security over the long term.”