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The Graying of Wealth

Tuesday, November 28, 2017

By Saeculum Research

According to the Federal Reserve’s latest Survey of Consumer Finances, wealth continues to shift to the nation’s seniors. Between 2013 and 2016, U.S. families’ wealth and incomes grew across the board as the economic recovery picked up steam.

Thanks to the ongoing bull market, the gains in wealth were bigger than the gains in income—and most of these went to seniors. In fact, households headed by those age 75 and older saw the largest increases in both mean and median net worth. This comes atop 30 years of rapid wealth growth among older Americans, with the result that their net worth now towers over that of younger families. It’s a new reality that’s turning seniors into pillars of financial support for their children and grandchildren as well as changing public perceptions of old age. The elderly represent a well-off, well-educated, and generally marketable consumer base. But as the next wave of younger retirees ages, this might not hold true for long.

The new Federal Reserve numbers reflect broad-based gains that cut across the economic spectrum. In 2016, the median net worth of American households was $97,300, up 16 percent from 2013 after adjusting for inflation. Mean net worth also rose nearly 26 percent to $692,100. The figures represent a welcome shift from the years immediately following the recession, when wealth declined for many families.

But the fruits of the recovery have been spread unevenly across different age groups. Faring the best were the oldest families led by those age 75 and older—an age bracket largely occupied by the Silent Generation. This group experienced a 32 percent increase in median household net worth and a staggering 60 percent increase in mean net worth. Today, the net worth of a typical retiree is $264,750. This amount shrinks moving down the age ladder: The Silent hold roughly 1.3 times the amount of wealth as Boomers, more than twice that of Xers, and 23 times that of Millennials. Since 2001, the median net worth of every age bracket except for the 75+ has actually declined. The medians for households under age 35 and ages 35 to 44 both plunged by more than 30 percent, for example, while the median for households age 75+ rose by 26 percent.

The relative affluence of today’s elderly is historically unprecedented. Never before have Americans age 75 and older had a higher median household net worth than that of any younger age bracket. Today, the typical 80-year-old household has twice the net worth of the typical 50-year-old household. As recently as 1995, they were about equal. Earlier, 50-year-olds were worth more—with the disparity growing larger the further you go back in time. The Silent came of age in an era (the 1950s and the early 1960s) when the elderly were vastly more impoverished than younger Americans, which ultimately triggered calls to declare a federal “war” on their destitution.

The latest numbers line up with other measures illustrating retirees’ good fortune. Since the 1980s, poverty rates among seniors have consistently been much lower than those among the young. In 1966, nearly 29 percent of Americans age 65 and older fell below the poverty line; by 2016, just 9 percent did. The richest of the rich are graying, too. In 1985, 12 percent of Forbes’s richest 400 Americans were under age 50—and 4 percent were under age 40. Today those figures are 8 percent and 3 percent, respectively.

How did the Silent end up in such an enviable position? It’s thanks to a combination of extraordinary luck and behavioral choices that have come to define this generation’s life story. As young adults coming of age after World War II, the Silent were guided by a strong sense of personal risk aversion. They kept their heads down and tried to play by the rules, both in their own lives and as political leaders. They married and had children early—earlier, in fact, than any other generation since at least the Civil War. The typical Silent adult was a stable, well-educated professional in good health.

Their straight-and-narrow choices also benefited hugely from historical timing. (See: “Once Again, Economy Hammers Gen Xers and Favors the Silent.”) Many of today’s older retirees locked in low mortgage rates on their first homes in the 1960s just before inflation accelerated. At work, they signed up young for the generous defined-benefit pension plans that have since been “frozen” for Boomers and disbanded for younger generations. Their midlife high-savings decades roughly coincided, in the 1980s and ‘90s, with perhaps the greatest bull market ever in both stocks and bonds. After riding this bull, the Silent retired and sold out just before the crash hit in 2008. Through it all, they faced less pressure than younger generations to keep up with ever-flashier living standards, and fewer opportunities to go into debt. (See: “Another Day Younger and Deeper in Debt”). Even when indebted, their steady accrual of wealth made it easy to pay off.

Today, the Silent are more likely to be living on retirement income that’s unaffected by economic ebbs and flows. Quantitative easing and low interest rates have inflated the value of the financial assets they’ve sat on for decades. They’ve aged into the healthiest, wealthiest generation of elders that has ever lived.

As a result, how we see seniors is changing dramatically. Marketers are attracted to their newfound spending power and are pouring ad dollars into drawing older consumers in their 60s and 70s. Advertising Age even spotlighted a string of campaigns featuring octogenarians from global brands like Nike and Poland Spring. Meanwhile, at home, the Silent have become economic anchors for America’s new renaissance in multigenerational family living. Many routinely pay for extended-family vacations, fund 529 plans to cover college costs, or subsidize their grown Boomer or Xer kids. (See: “Grandparents Take Charge.”) In fact, according to a recent report from the Kenan Institute, Americans age 65+ are more than twice as likely to be caring for non-elderly family members than they are to be receiving care themselves.

Yet this situation is likely to be temporary. The 75+ age bracket has become more affluent as it has lost members of the less prosperous G.I. Generation and filled with the Silent. Barring any dramatic market or policy changes, the golden age should continue with early-wave Boomers. But starting in 2025, this cohort will start to fill with late-wave Boomers, marking the beginning of the end of this era of elder affluence. Late-wave Boomers have underperformed early-wave Boomers at every age: They’re less educated, less wealthy, less likely to qualify for retirement benefits, and have more debt. As a result, this rocky stage of the Boomers’ retirement years will look nothing like that of the Silent, who continue to coast on a streak of luck that has carried them all the way to the present.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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