Allworth Advice: Left behind 401(k)
Amy Wagner with Allworth Financial discusses left behind 401(k)s
Allworth Financial, Cincinnati Enquirer
The youngest baby boomers, born in the era that spawned Beatlemania, face a looming retirement crisis, researchers have found.
“Late boomers,” Americans born between 1960 and 1965, have less retirement wealth, and much less retirement savings, than either older boomers or “war babies,” generations born between 1942 and 1959, according to a recent paper from the Center for Retirement Research at Boston College.
To compare wealth, researchers examined different generational groups at the same age range, adjusting for inflation.
A decade ago, at ages 51 to 56, the average “late boomer” had about $280,000 in combined wealth from Social Security, pension benefits and 401(k)-type retirement plans, in inflation-adjusted dollars. The calculation covers households in the middle 20% by wealth.
Earlier generations had more wealth at the same age. The average “mid boomer,” born between 1954 and 1959, had about $332,000 in total retirement wealth. The average “early boomer,” born between 1948 and 1953, had nearly $346,000.
What happened to the retirement savings of Beatlemania-era boomers?
What happened to the retirement savings of the Beatlemania boomers?
Blame the Great Recession, the longest economic downturn since World War II, stretching from late 2007 through mid-2009. Home values plummeted, joblessness soared, and the S&P 500 lost more than half of its value.
The downturn hit when late boomers were in their top earning years, their early to late 40s.
“People are really starting to peak in their careers around that time,” said Evan Potash, executive wealth management advisor at TIAA, the financial services company. “They’re making, potentially, the most amount of money they’re going to make.”
The employment rate for late boomers plummeted in the Great Recession years. The share of young boomers who said they were working declined from 98% at age 44 to 77% at age 50, the researchers found.
At 50, most late boomers should have had at least a decade of work ahead of them. Yet, many in that generation never returned to the job market. By age 57, only 61% of late boomers were working.
That age is “too early for people to retire,” said Anqi Chen, a senior economist at Boston College and co-author of the paper. “Even for those who did keep their jobs, their earnings were a lot lower.”
Average earnings for the youngest boomers dipped from about $79,000 at age 44 to $69,000 at 47, among households in the middle quintile of wealth.
And their earnings never fully recovered.
By contrast, older generations saw their earnings rise in their mid-40s. At age 47, the average “mid boomer” earned nearly $92,000, roughly one-third more than late boomers.
The youngest boomers took a hit to their 401(k)s in the Great Recession
Along with salaries, the retirement savings of the youngest boomers also took a grievous hit in the Great Recession.
In their prime earning years, late boomers saw their retirement funds decline from roughly $31,000 in value at age 47 to $26,500 at age 51, on average.
Late boomers “started out with a lot of 401(k) wealth,” Chen said. “But then, it kind of stopped, and then it dropped.”
The findings come from a paper published in August 2023 under the title, “What Happened to Late Boomers’ Retirement Wealth?” The work tapped two respected longitudinal surveys, the Health and Retirement Study and the Survey of Consumer Finances. Researchers have since updated the findings with results from the Federal Reserve’s latest Survey of Consumer Finances.
Jeri Lynn, a Floridian, was an office manager in her early 40s when the Great Recession hit. In late 2008, she lost her job.
She returned to work as a server at Applebee’s, logging erratic hours and earning far less than before.
“And it just got to where I couldn’t pay my rent,” she said. “I was applying for jobs, and it was just ‘No, no, no, no.’”
Lynn didn’t land another good job until 2011. By then, her savings were decimated.
Born in 1967, Lynn is technically a Gen Xer, but her experience matches those of her late-boomer peers. She works now as a full-time photographer.
“There are so many people in our age group who I know who have no retirement savings,” she said.
Boomers with inadequate retirement savings could face decades of hardship
Advocates for older Americans warn that late boomers with inadequate retirement savings could face decades of hardship: In a sense, their troubles are only beginning.
“They have 20, 25, 30 years of lifespan in front of them,” said Josh Hodges, chief customer officer at the National Council on Aging. “We’re still going to be talking about this cohort of individuals in 2035, 2045, 2055.”
With lagging retirement wealth, young boomers may find themselves confined to a lower standard of living in their final years. They may struggle to keep up with mounting healthcare expenses, and with the potentially crippling costs of long-term care. They may outlive their savings. Millennial children may be burdened with their care.
It’s all too easy to blame the boomers for failing to save for their own retirement, Hodges said, when the economic forces of the late 2000s were beyond their control.
“The reality is, people were forced to make financial decisions, put food on the table, a roof over their heads,” he said. “What it comes down to is, these people didn’t do anything wrong.”
Not all late boomers are behind on retirement savings. The average Fidelity 401(k) account for savers ages 60-64 held $227,700 in the fourth quarter of 2023. But the rich inflate that number. The median balance, which ignores outliers, was a more modest $65,300.
Older boomers suffered through the Great Recession, too, along with younger Gen Xers and millennials.
But the 2008 downturn had a deeper effect on the Beatlemania babies, the research suggests.
The oldest boomers were nearing the end of their careers when the Great Recession hit. They were exiting their peak earnings years, nearing retirement, or retired already. Older workers had amassed more retirement savings than late boomers by 2008.
More than 90% of early boomers were still working at age 55. Fewer than 80% of late boomers held jobs at that age.
The downturn had less impact on younger workers, the researchers said, because it came earlier in their careers. Younger Gen Xers and millennials had not yet reached their peak earning years when the economy tanked: In terms of both earnings and savings, they had less to lose.
More: What if the government abolished your 401(k)? Economists say accounts aren’t worth it
While the Great Recession was the main factor depleting the wealth of late boomers, researchers found, it wasn’t the only one.
Part of the wealth gap between late boomers and older Americans draws from demographic differences. Late boomers are less likely than older boomers to be married and to have college degrees, and they are more racially diverse. Black and Hispanic households hold less retirement wealth than white households, the researchers found, but the gap is shrinking.