Analysis: How the youngest cohort of baby boomers fell behind

A decline in retirement wealth between older baby boomers and their younger Boomer counterparts has been expected due to the increase in Social Security’s full retirement age and a shift from defined benefit to defined contribution plans. However, new research from the Center for Retirement Research at Boston College characterized the retirement wealth of late boomers as “surprisingly low.”

Late boomers represent the first generation where workers could feasibly have spent their entire career covered by a 401(k) plan, and increasing 401(k) and IRA balances that were expected to offset the gap created by a decline in pension programs haven’t materialized for this age group, the brief said. 

Late boomers weren’t always behind in private retirement savings, according to the Survey of Consumer Finances (SCF), which has been conducted every three years since 1983.

“In fact, until their mid-40s, late boomers held more 401(k)/IRA assets than earlier cohorts at the same age,” said the brief. “Thereafter, however, that pattern changed abruptly; growth ceased and average assets actually dropped. While their balances did start to grow again as they moved into their 50s, their holdings remained significantly below those of earlier cohorts.”

The factor that seems to have caused this pattern change is the Great Recession, which hit when late boomers were in their 40s. Their employment rate dropped sharply during that time and the percentage of the cohort working did not rebound as the economy recovered, said the brief. Many late boomers ended up permanently unemployed, unable to contribute to their 401(k)s and often tapping into accumulated retirement assets to support themselves.

“Even among working households, the Great Recession appears to have taken a greater toll on late boomers than on earlier cohorts,” according to the brief. “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 mid boomers.”

Related: Is this a financial crisis? 4 in 10 retirement savers say yes, though generations diverge

Lower earnings were accompanied by a decline in the share of households participating in a 401(k) plan, and for those who continued to participate, the trajectory of their balances changed dramatically. After the economic collapse, late boomers had account balances largely below those of other boomers where they had exceeded those of earlier cohorts in the past, the report said.