How Will Boomers Fare at Retirement?

Brief #2 from the series Older Americans' Economic Security

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As boomers approach retirement, the news on how they will fare is mixed. In absolute terms—measured by higher wealth and income, and lower poverty—boomers will be better off than current retirees. But in relative terms, measured as the ratio of postretirement income to preretirement income or to workers' incomes, boomers will be no better off or in some cases worse off than current retirees.

In Absolute Terms, Boomers Will Be Better Off

The Urban Institute's Dynamic Simulation of Income Model (DYNASIM) projects that boomers will amass more wealth (2003 dollars) at retirement than the previous two generations (table 1).¹ Household wealth includes financial wealth, housing equity, Social Security, defined benefit pensions, and defined contribution plans and other retirement accounts.² Median household wealth at age 67 will grow from $448,000 among current retirees to $589,000 among early boomers and $609,000 among late boomers.

As a result, the typical boomer will receive more income at retirement. This is income generated from household wealth plus earnings, Supplemental Security Income, and income from non-spouse coresident family members.³ Median household income at 67 will increase from $36,000 among current retirees to $50,000 among early and late boomers. Surprisingly, late boomers will accumulate only slightly more wealth than early boomers and receive no more income at retirement.⁴

The increase in retirement incomes between current retiree and boomer cohorts will reduce poverty substantially, largely because poverty thresholds are not adjusted to reflect real-wage increases.⁵ Overall, poverty rates at age 67 are expected to decrease from 8 percent among current retirees to 4 percent among early boomers and 2 percent among late boomers. So absolute measures suggest that boomer retirees will be better off than current retirees.

Notes from this section of the report

Adapted from Butrica and Uccello (2004) at http://www.urban.org/url.cfm?ID=900767.

1. See Favreault and Smith (2004) for a description of DYNASIM.

2. There is debate over whether to include housing in economic measures of well-being. Proponents argue that homeowners with identical financial resources as renters are better off because they do not have to pay for housing. Critics argue that only actual income flows should be included. Although we account for housing in household wealth and income, we exclude imputed rent from replacement rates and poverty rates.

3. DYNASIM imputes income from financial assets by determining the real (price-indexed) annuity a family could buy if it annuitized 80 percent of its financial assets. The annuity is used for that year's imputation of financial assets only, and is recalculated each year to reflect changes in wealth (based on a model of wealth spend-down) and life expectancy given the individual has survived another year. For married couples, we assume a 50 percent survivor annuity.

4. Butrica and Uccello (2004) show that even when housing is excluded, both household wealth and income are projected to increase over time.

5. Like the U.S. Census Bureau, we exclude imputed rent from our estimates of poverty.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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