The Impact of the Housing Bust on Baby Boomer Wealth

The housing market collapse has impacted many lives over the past three years. It has been estimated that more than $10 trillion in household wealth virtually disappeared between the peak market period of 2007 and early 2009. Those hardest hit are baby boomers nearing retirement. Researchers at the Center for Economic and Policy Research utilize data from a recent Survey of Consumer Finance to assess the impact that this crash has had on this generation of people.

Previous research indicates that families were already poorly prepared for retirement coming into this new century. Much of the economic growth of the 1990s resulted in large amounts of wealth inequality, with the majority of the economic gains of that period funneling to the top of the socioeconomic ladder. The subsequent crash of the stock market at the beginning of the century shifted this money into even fewer hands. As a result, since that time the proportion of retirement income covered by Social Security has been growing, a trend that is compounded by the decline of the defined benefit pension plan. At that time, it was estimated that one in five homeowners and three in five renters between the ages of 47 and 64 held inadequate household wealth to provide income, including social security benefits, significantly above the poverty line.

Before the housing crash, retirement security was already being challenged. For instance, in 2007, these researchers show that the median net worth of families between the ages of 55 and 64 fell by 13.8% in just three years. The econometric projections produced by these researchers indicate a much more substantial drop in retirement security as a result of the housing and subsequent credit crunch.  In 2009, they estimate that the net worth of 55 to 64 year olds fell by another 29%.

The difficulty this poses for people nearing retirement are obvious. Older workers are now reconsidering their retirement plans, recalibrating their lifestyles, and attempting to piece together a secure future. If there is a silver-lining in all of this, they have actually fared better than the age-cohort just behind them (ages 45 to 54), who’s net worth dropped by nearly 60% in two years.

Because of this massive drops in net wealth look for retirement security to take center stage alongside other public discussions regarding ethical reform in the finance industry in the coming years.

 

Source:
Rosnick, D., Baker, D. 2010. Journal of Aging and Social Policy 22(2): 117-128.

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