Title: Beatlemania Boomers & The Retirement Wealth Gap
Announcer: It’s You Earned This, the Social Security and Medicare podcast, brought to you by the National Committee to Preserve Social Security and Medicare, and now your host, Walter Gottlieb.
WALTER: Baby Boomers are on the verge of becoming the wealthiest generation in history. But it turns out that younger Boomers are not sharing in that generational prosperity. USA Today nicknamed this younger age cohort the Beatlemania Boomers! And a new study suggests that they have less retirement wealth and leaner retirement savings than older Boomers do. To paraphrase the Beatles: You say you want an explanation, well…
Today we hear from one of the two authors of that study to tell us exactly what they found and what it all means for younger Boomers. Anqi Chen is a senior research economist and the Assistant Director of Savings Research at the Center for Retirement Research at Boston College. That’s an impressive title and a mouthful. Welcome, Anqi!
ANQI: Thank you, Walter. Thank you for having me.
WALTER: We appreciate your being here. So, when USA Today did an article about your study, they labeled the younger members of the Boomer generation Beatlemania Boomers. And I guess that’s because they were born in the early 60s when Beatlemania swept the nation. True confession: I am one of those Beatlemania Boomers. So for the purposes of your study, what exact birth years did you look at and why?
ANQI: Yeah, so we looked at Boomers who were born between 1960 and 1965. And we looked at, we decided to cut up the Boomers into different groups because I mean, with all of these labels for different cohorts, they are a 20-year cohort. And, you know, it’s not surprising that they have very different experiences and they may not actually be that similar. We wanted to cut up the large Boomer generation and we found some interesting trends.
WALTER: And we’ll get into the reasons why this younger group of Boomers seems to have less retirement security than the older Boomers. But before we do that, please tell us, Anqi, what were your major findings in this study?
ANQI: Yeah, so our major findings was that late Boomers had a lot less retirement wealth and just total wealth than their older counterparts. So because of the changes in the full retirement age of Social Security, it was expected that late Boomers would have less Social Security wealth than older cohorts. It was also expected that they would have less defined benefit pension wealth because of the shift in what companies were providing in terms of retirement benefits. But then they also had less 401k type wealth, which was not what we had expected.
WALTER: It sounds like the Great Recession earlier in this century really walloped the younger Boomers. Can you talk about that?
ANQI: Yeah, what we found was that, you know, the Great Recession hit obviously everyone, but the late Boomers were in a very unique age point during the Great Recession. What I mean by that is that you know, when you’re in your mid late 40s, early 50s, that’s kind of peak earning years, right, and that’s when the late Boomers were hit and so many of them lost their jobs, which means that you know they may have had to draw down on some of their savings.
They certainly couldn’t contribute more to a retirement plan if they weren’t working. Some of them maybe had to take a lower paying job, which made it harder to save, or maybe didn’t have benefits. And then, of course, everyone’s portfolios were hit by the market. So all of these conditions combined kind of hit late Boomers particularly hard relative to other cohorts, both older and younger.
WALTER: And haven’t you said that the late Boomers, the Beatlemania Boomers, whatever you want to call them, never fully recovered from the Great Recession because of the age at which they were when it hit?
ANQI: Yeah, yeah. So we looked at their, their work and their earnings and it seems like there was a big dip for them around the Great Recession and never really went back up, but it’s, you know, in your mid 40s, early 50s. That’s kind of too early to retire, whereas some of the older cohorts, if they were hit in their 60s, they would just be retiring like, maybe two or three years early. Versus late Boomers, what that would be a very big shift.
WALTER: So we used to talk about a three-legged stool for retirement which consisted of pensions, retirement savings and Social Security, and it seems like the younger Boomers, or the late Boomers, as you’re calling them, were the first generation to have two of those legs kicked out from under them and, after all, pensions helped build the American middle class, and now only 15% of private sector workers have pensions. What happened?
ANQI: Yeah, I mean, so there was a big shift in the share of companies offering pensions in the early 80s and 90s. Initially 401ks and other DC 401k type accounts, DC accounts, came on as a supplement to pensions and then employers started shifting towards having those be the primary source of employer retirement benefit.
WALTER: So, Anqi, in the ‘old days’ when more employers provided pensions as opposed to today’s 401K world, where they don’t… the worker was guaranteed a fixed benefit. There was a lot less risk for the worker?
ANQI: Definitely, employers took on the market risk and the longevity risk. And what I mean by that is that if the market is down, the employers are still obligated to pay that promised benefit to the retiree. And the longevity risk is that regardless of how long you live, again, the employer is responsible for paying that benefit, whereas in a 401k type world, the worker would have to figure out how to manage that pile of money that they have at retirement.
WALTER: But just so we’re clear, the shrinking of pensions is one of the factors that you found that reduced the retirement wealth of the late Boomers. Is that right?
ANQI: Yes. Because they did take on the market risk and the market was bad.
WALTER: Thank you. So do your findings, Anqi, emphasize the need to keep Social Security strong and even to expand benefits as Congressman John Larson and Senator Bernie Sanders and others on Capitol Hill have proposed?
ANQI: It certainly emphasizes the importance of Social Security because Social Security is the foundation of retirement income for a lot of retirees. You know, at the middle, it replaces about 36 to 40% of income, even at the high end, it’s still like 20 some percent of income. And so that is an important portion of income for everyone across the income stream. Having a strong base is extremely important for retirement security.
WALTER: And it sounds to me like with the disparity in retirement wealth between the younger Boomers and the older Boomers, that those younger Boomers that you studied will be relying on their Social Security benefits to keep their heads above water financially.
ANQI: They’ll definitely be relying on it more than older cohorts because they have less in the employer sponsored portion. And so there’s less, you know, supplemental. There’s less on top of what they get from Social Security.
WALTER: What other negative effects might the younger Boomers suffer not having the retirement security and retirement wealth of their older counterparts? Are they going to struggle more financially? Are they going to have to rely more on their children? Are they going to have to downsize more? What do you see there as the impact?
ANQI: I mean, I’m not sure what they will have to do. But they certainly are entering into retirement with fewer resources, which means that they will have to cut back or make some adjustments. What those look like, I think, is a little too early to tell.
WALTER: That’s a reasonable answer. Thank you. And I was curious about this. If the younger Boomers are the first to experience these disparities, then will Gen X and the younger generations after them experience some of those same challenges, you know, saving for retirement, lack of pensions, increasing wealth inequality?
ANQI: Yeah, I mean, that’s a really, really, good question. And so we did try and look at some of the younger cohorts and see how their retirement assets looked. They did look better than the late Boomers, mainly because, again, they were younger when the recession hit. Everyone, you saw that dip in their assets. But because they were younger, they were able to just recover over time. I think the key is that this is, when we looked at these data points, these are for people who do have 401k assets or IRA assets or employer-sponsored plans. A lot of workers don’t have any money. And so I think that that’s also going to be an important point going forward.
WALTER: We talk a lot about proposals on Capitol Hill to raise the retirement age. It was already raised, the full retirement age was already raised to 67 during the 1983 reforms, and that affects anyone born in 1960 and after, which is the beginning of your Beatlemania Boomer cohort. Now, some on Capitol Hill and some presidential candidates have been talking about raising the retirement age even higher to 69 or 70. Wouldn’t that be a colossally bad idea, given the data that you found?
ANQI: So it would definitely hurt certain workers who can’t work until the full retirement age, and there are definitely groups of workers that can’t work until the current full retirement age or longer than that. And they would certainly be hurt. And these are workers that tend to be lower-earning workers as well that rely even more on Social Security. And so so that’s definitely a concern for a large swath of workers.
WALTER: Understood. Well, the serious part of the conversation can be over now. You’ve done great, Anqi. And I thought we’d end on a lighter note, just because I’m one of the Beatlemania Boomers and USA Today, you know, referred to your cohort that you were writing about as the Beatlemania Boomers. So, Anqi, which one of these early Beatles songs best describes the retirement security challenges of the Beatlemania Boomers? Is it Twist and Shout, Yesterday, I Feel Fine, Ticket to Ride, or It’s Been a Hard Day’s Night?
ANQI: I have to admit, I am not familiar with the Beatles songs, but from the titles, “I Feel Fine” seems appropriate. We’ve done some other studies that show that there is there’s actually a lot of misperception in terms of how people think, whether they’re prepared for retirement. So there’s a lot that say that they they’re fine and they’re great. And so I’m going to go with that answer.
WALTER: Ah, so it’s the counterintuitive title that wins. Well, I appreciate that. And, you know, in my opinion, this podcast that we just did is the listeners’ ticket to ride to understanding retirement security and all the challenges therein. Anqi, you have been a great guest. Thank you for all the great work that you and your colleagues do at the Center for Retirement Research. And thank you for being here.
ANQI: Thank you for having me.
WALTER: And if you want to join is in our fight to make sure that younger Boomers, and Gen X, and millennials, and all the younger generations have a fighting chance for retirement security as they grow older, join us here at the National Committee to Preserve Social Security and Medicare by visiting NCPSSM.org — that’s NCPSSM.org, and clicking join us! Our engineer has been Shahab Shokouhi, our editor is Simon Laslo-Janssen, I’m Walter Gottlieb your host, reminding you that you earned this!