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The Old Get Richer, the Young Get Poorer

The old have gotten wealthier, while the young have become poorer. That’s the conclusion of “The Old Prosper Relative to the Young,” a recent report by economists and researchers at the Pew Research Center.

In documenting a rising age gap with regard to economic well-being, the authors compare households headed by adults over age 65 to households headed by adults younger than 35. They examine data over time–particularly from 1967, 1984, 2005, and 2009-2010. (The comparison between 2005 and 2009-2010 illustrates the impact of the Great Recession.)

Here are some of their conclusions:

•        From 1984 to 2009, the median net worth of older households rose 42%. For younger households, it declined by 68%.

•        The gap in wealth between older and younger households widened over time. In 1984, the median net worth of older households was $108,000 higher than that of younger households. But by 2009, the median net worth of older households was $166,832 higher than that of younger households, the “largest (gap) in the 25 years that the government has been collecting this data.” (All figures are expressed in 2010 dollars.)

•        In younger households, median adjusted annual income rose 27%, from $38,555 in 1967 to $49,145 in 2010. (Again, the figures are in 2010 dollars.) At the same time, income for older households rose 109%, from $20,804 to $43,401.

•        From 2005 to 2009, median net worth for older households declined 6%, versus a 55% decline for younger households.  Meanwhile, the adjusted median income of the oldest households rose 8%, while the youngest households experienced a 4% drop.

Housing plays a big role in the trend, the authors say. Older Americans have been “the beneficiaries of good timing, in the form of the long run-up in home values that enabled them to accumulate wealth via home equity,” the report says. While older homeowners purchased “long ago, at “pre-bubble” prices” many younger adults “bought as the bubble was inflating,” and now owe more on their mortgages than their homes are worth. (They have also been saddled with higher college loan debt than their same-aged peers of past decades, the report says.)

There are labor market trends at work, too. Due in part to the recession, today’s young have experienced a “delayed entry into the labor market.” But older adults are staying in the job market longer. Currently, 16% of those ages 65 and older are employed, versus 10% in 1985.

With Social Security as a steady income source, older Americans have experienced less poverty and earnings volatility than their younger counterparts.

Still, the report documents hopeful signs for younger Americans: A growing number, the authors note, are college graduates, “and college education has been found to confer a significant financial payoff over the course of a lifetime.”


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.