The Center for Retirement Research at Boston College has landed on a startling discovery: Baby boomers born in the early 1960s have about $50,000 less saved for retirement when they reach their early 50s than those born in the late 1950s.
Great Recession’s Role
According to recent research, the Great Recession is the number one reason baby boomers born at the end of their generation have less money saved for retirement in their 50s than those born earlier.
A 10% spike in unemployment during the Great Recession appears to be the driving factor why younger boomers are about $50,000 poorer than older boomers. Many younger boomers were forced to reduce or halt contributions to their 401(k).
The 401(k) Transition
Late boomers were the first generation to have the option to save for a 401(k) for their entire careers. Pensions were still common for people born earlier in the baby boomer generation.
The first 401(k) plans were available to Americans in late 1978. Since the baby boomer generation was born between 1946 and 1964, the youngest baby boomers were 14 years old when 401(k)s became a thing.
The Race for Wealth
Here’s a painful reality: Late boomers had been doing better with retirement savings than middle boomers up until the Great Recession. At age 41, late boomers had an average of $15,329 saved for retirement, while middle boomers only had saved just over half as much.
Ten years later, at 51 years old, late boomers only had about $28,000 saved for retirement. Meanwhile, middle boomers’ savings shot up to around $50,000.
Many late boomers who didn’t lose their jobs during the Great Recession also took retirement savings hits. The Great Recession happened when late boomers were in their 40s, and many experienced a pay cut. Under normal conditions, a person in their 40s is often in their peak earning years.
Pay at 50
Since income often levels out or declines when a person reaches around 50 years old, late boomers were at a disadvantage. Many had to work the remainder of their 40s with the hope of recouping the higher salary they lost to the recession.
Since many late boomers worked on reduced pay during the Great Recession, their 401(k)s took an extra hit. Not only were they contributing less money towards their 401(k)s, but their employers were as well, given that company contributions are based on a percentage of worker’s earnings.
By the time late boomers reached 50 years old, their average household earnings were $73,000. In contrast, mid-boomers had a household average of $88,000 at 50 years old, and early boomers had $104,000.
The Great Recession aside, early baby boomers had a built-in social security (SS) advantage over peers born towards the end of their generation. The statutory age for collecting the full monthly SS benefit has slowly increased, meaning younger boomers must wait longer to receive full SS.
Another factor that impacts the appearance of late boomer’s retirement savings is that demographic changes mean that more Black, Hispanic, and other people of color’s retirement account amounts are included in the data. People who aren’t white have historically lower salaries and retirement savings.
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