Retirement Prospects of Baby Boomers - Statistical Data Included

Family Economics and Nutrition Review, Wntr, 1999

The baby-boom generation consists of about 78 million persons who were born from 1946 to 1964 inclusive. This generation represented 29 percent of the 1997 U.S. population, and when it reaches old age, our retirement system and health care institutions could be strained. The Bureau of the Census estimates that there will be twice as many persons age 65 or older in 2030 as there are today: 69 million (20 percent of the population) versus 34 million (13 percent of the population). Likewise, the Bureau's population projection, from its middle series, shows 18 million persons age 85 or older in 2050 (4 1/2 percent of the U.S. population); now, there are less than 4 million persons in that age group (1 1/2 percent of the U.S. population).

Generalizations about all baby boomers cannot be made: the baby-boomer generation is diverse, and this diversity will continue when this generation reaches retirement age. In addition, all projections about the economic status of baby boomers in retirement are subject to much uncertainty. All models that are used to produce projections are sensitive to various assumptions. However, researchers can identify specific subgroups of baby boomers that are likely to do better or worse than baby boomers in general. This article summarizes results from several studies concerning the financial prospects of baby boomers in their elderly years. Reports by the following government agencies, organizations, and authors are discussed.

* Congressional Budget Office (CBO), 1993

* Easterlin, Schaeffer, and Macunovich, 1993

* American Association of Retired Persons (AARP), 1994

* Bernheim, 1993

* Kotlikoff and Auerbach, 1994

Studies

Congressional Budget Office, 1993

The CBO study compared the actual income and wealth of baby boomers with that of their parents' generation at the same age and discussed the prospects for the economic well-being of the baby boomers in retirement. Incomes of baby boomers in 1989 were compared with incomes of their parents' generation at the same age in 1959. Using the 1960 Decennial Census and the March 1990 Current Population Survey, the CBO found that baby boomers in retirement generally should be better off than their parents, but some subgroups might not be.

The study examined income change for several socioeconomic subgroups of baby boomers and their parents--classifications by marital status of the householder, number of children in the household, education of the householder, and relative income level. Except for households where the householder did not have a high school education, all subgroups had increases in median income (constant dollars) from 1959 to 1989. The net worth of baby boomers (ages 25 to 34 and 35 to 44) and that of their parents' generation at the same age were also examined. The CBO used data from the 1962 Survey of Financial Characteristics of Consumers and the 1989 Survey of Consumer Finances. The study revealed that during the period, median constant dollar wealth rose for all households, married-head households, and unmarried- head households in both age groups.

The CBO report discussed factors that would be important when looking at the prospects for the economic well-being of baby boomers in retirement. For example, real wages should rise during the next 20 to 40 years, but the rate of growth will be less than that of the 1950's and 1960's. The Social Security retirement age will rise to age 67, and the Social Security earnings test has been made more liberal: factors that might influence people to retire later. Social Security and private pensions are likely to remain important sources of retirement income for baby boomers.

The CBO study concluded that baby boomers with low educational attainment, those who are not married, and those who are not homeowners are more likely than other boomers to have less retirement income than their parents' generation. At-risk groups include younger baby boomers with less than a high school education and younger baby boomers who are single and have children. General sources of risk for baby boomers in retirement are uncertain medical expenses, the size of educational expenses for their children, and uncertainty about average life expectancy when they reach retirement.

Radner prepared estimates of income that are similar to those in the CBO report but also included data in 1994 constant dollars. The oldest baby boomers, ages 45 to 49 in 1994, had median income that was 66 percent above the median for their parents' generation in 1964. The percentage increases for the other baby-boomer cohorts were 54 percent for those ages 40 to 44, 59 percent for those ages 35 to 39, and 51 percent for those ages 30 to 34. These results were consistent with those reported by the CBO.

Easterlin, Schaeffer, and Macunovich, 1993

The Easterlin, Schaeffer, and Macunovich study, using data from the CPS, compared the actual incomes of baby boomers with the incomes of persons 25 years older--assumed to be in their parents' generation. The researchers used four baby-boomer birth cohorts: 1946-50, 1951-55, 1956-60, and 1961-65. (Those born in 1965 are not considered baby boomers.) This study found that the baby boomers were better off than their parents and other cohorts at the same age, but the gap may be narrowing over time.