How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation

Gale, William and Gelfond, Hilary and Fichtner, Jason (2018): How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation. Published in:

Abstract

We consider prospects for retirement saving for members of the millennial generation, who will be between ages 54 and 69 in 2050. Adequacy of retirement saving preparation among current and near-retirees is marked by significant heterogeneity, a characteristic that will likely hold for Millennials as well. In preparing for retirement, Millennials will have several advantages relative to previous generations, such as more education, longer working lives, and more flexible work arrangements, but also several disadvantages, including having to take more responsibility for their own retirement plans and marrying and bearing children at later ages. The millennial generation contains a significantly higher percentage of minorities than previous generations. We find that minority households have tended to accumulate less wealth than whites in the past, even after controlling for income, education, and marital status, and the difference appears to be growing over time for black households relative to whites. Whether these trends persist is central to understanding how the Millennials will fare in retirement.

• Item Type: MPRA Paper
• Language: English
• Keywords: Millennials, Saving, Retirement Security, Demographic Trends
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

References

Altonji, Joseph and Ulrich Doraszelski. 2005. “The Role of Permanent Income and Demographics in Black/White Differences in Wealth.” Journal of Human Resources. 40(1): 1-30. Winter 2005. Aon Hewitt. 2012. “The Real Deal: 2012 Retirement Income Adequacy at Large Companies.” Aon Hewitt. Auerbach, Alan, William Gale, and Aaron Krupkin. 2018. “The Federal Budget Outlook: We Are Not Winning.” Tax Notes. 617-628. July 30. Barsky, Robert, John Bound, Kerwin Charles, and Joseph Lupton. 2002. “Accounting for the Black-White Wealth Gap.” Journal of the American Statistical Association. 97:459, 663- 673. Bee, Adam and Joshua Mitchell. 2017. “Do Older Americans Have More Income than we Think?” SESHD Working Paper No.2017-39. US Census Bureau: Washington, DC. Bernanke, Ben. 2007. “Global Imbalances: Recent Developments and Prospects.” Speech at the Bundesbank Lecture. September 11. Bernanke, Ben. 2015. “Why are interest rates so low, part 3: The Global Savings Glut.” Ben Bernanke Blog, the Brookings Institution: April 1. Board of Governors of the Federal Reserve System. 2017. “Survey of Consumer Finances 2016.” Board of Governors of the Federal Reserve System: Washington, DC. Burbidge, John B., Lonnie Magee, and A. Leslie Robb. 1988. “Alternative Transformations to Handle Extreme Values of the Dependent Variable.” Journal of the American Statistical Association. 83(401): 123-27. Burtless, Gary. 2013. “Can Educational Attainment Explain the Rise in Labor Force Participation at Older Ages?” Center for Retirement Research at Boston College: Chestnut Hill, MA. Butricia, Barbara, Howard Iams, and Karen Smith. 2012. “This Is Not Your Parents’ Retirement: Comparing Retirement Income Across Generations.” Social Security Bulletin. 72(1):37- 58. Chen, Anqi, Alicia H. Munnell, and Geoffrey T. Sanzenbacher. 2018. “How Much Income do Retirees Actually Have?” Center for Retirement Research at Boston College: Chestnut Hill, MA. Chetty, Raj, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter. 2018. "Race and Economic Opportunity in the United States: An Intergenerational Perspective.” NBER Working Paper No. 24441. Coile, Courtney. 2018. “Working Longer in the U.S.: Trends and Explanations.” NBER Working Paper No. 24576. Congressional Budget Office. 2017. “Measuring the Adequacy of Retirement Income: A Primer.” Congressional Budget Office, Washington, DC. Congressional Budget Office. 2018. “The Budget and Economic Outlook: 2018 to 2028.” Congressional Budget Office: Washington, DC. Council of Economic Advisers. 2014. “15 Economic Facts about Millennials.” The White House: Washington, DC. Dettling, Lisa and Joanne Hsu. 2014. “The State of Young Adults’ Balance Sheets: Evidence from the Survey of Consumer Finances.” Federal Reserve Bank of St. Louis Review, Fourth Quarter, 2014. (96)4:305-330. Dettling, Lisa, Joanne Hsu, and Elizabeth Llanes. 2018. “A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession.” FEDS Notes. Board of Governors of the Federal Reserve System: Washington, DC. Dimock, Michael. 2018. “Defining Generations: Where Millennials End and Post-Millennials Begin.” Pew Research Center: Washington, DC. Dushi, Irena and Marjorie Honig. 2015. “How Much do Respondents in the Health and Retirement Study Know About Their Contributions to Tax-Deferred Contribution Plans? A Cross-Cohort Comparison.” Journal of Pension Economics and Finance. 14(3):203- 239. Dushi, Irena, Alicia H. Munnell, Geoffrey T. Sanzenbacher, Anthony Webb, and Anqi Chen. 2016. “Do Households Save More When the Kids Leave Home?” Center for Retirement Research at Boston College: Chestnut Hill, MA. Dynan, Karen, Jonathan Skinner, and Stephen Zeldes. 2004. “Do the Rich Save More?” Journal of Political Economy. 112(2): 397-444. Elmendorf, Douglas and Louise Sheiner. 2016. “Federal Budget Policy with an Aging Population and Persistently Low Interest Rates.” Hutchins Center Working Paper #18. Emmons, William and Lowell Ricketts. 2017. “College Is Not Enough: Higher Education Does Not Eliminate Racial and Ethnic Wealth Gaps.” Federal Reserve Bank of St. Louis Review, First Quarter, 2017. 99(1): 7-39. Engen, Eric, William Gale, and Cori Uccello. 1999. “The Adequacy of Household Saving.” Brookings Papers on Economic Activity. 2(1999): 65-187. Fichtner, Jason and William Gale. 2017. “Economic and Political Consequences of Inadequate Retirement Saving for the Millennial Generation.” Fichtner, Jason and Jason Seligman. 2017. “Retirement Saving and Decumulation in a Persistent Low-Return Environment.” Pension Research Council Working Paper, Pension Research Council, University of Pennsylvania. Fry, Richard. 2017a. “5 Facts About Millennial Households.” Pew Research Center: Washington, DC. Fry, Richard. 2017b. “It’s Becoming More Common for Young Adults to Live at Home—and for Longer Stretches.” Pew Research Center: Washington, DC. Fry, Richard, Ruth Igielnik, and Eileen Patten. 2018. “How Millennials Today Compare with Their Grandparents 50 Years Ago.” Pew Research Center: Washington, DC. Gale, William and David John. 2017. “State Sponsored Retirement Savings Plans: New Approaches to Boost Retirement Plan Coverage.” Pension Research Council Working Paper, The Wharton School, University of Pennsylvania. Gale, William and Karen M. Pence. 2006. “Are Successive Generations Getting Wealthier, and If So, Why? Evidence from the 1990s.” Brookings Papers on Economic Activity. 1(2006): 155-234. Gale, William, John Karl Scholz, and Ananth Seshadri. 2009. “Are All Americans Saving ‘Optimally’ for Retirement?” Gale, William, Sarah Holmes, and David John. 2018. “Retirement Plans for Contingent Workers: Issues and Options.” The Brookings Institution: Washington, DC. Government Accountability Office. 2015. “Contingent Workforce: Size, Characteristics, Earnings, and Benefits.” US Government Accountability Office: Washington, DC. Harris, Seth and Alan Krueger. 2015. “A Proposal for Modernizing Labor Laws for Twenty-First Century Work: The ‘Independent Worker.’” The Brookings Institution: Hamilton Project. Harvey, Catherine. 2017. “Access to Workplace Retirement Plans by Race and Ethnicity.” Fact Sheet. AARP Public Policy Institute: Washington, DC. Hasler, Andrea, Annamaria Lusardi, and Noemi Oggero. 2018. “Financial Fragility in the US: Evidence and Implications.” Global Financial Literacy Excellence Center, The George Washington University School of Business: Washington, DC. Hou, Wenliang, Alicia Munnell, Geoffrey Sanzenbacher, and Yinji Li. 2017. “Why are US Households Claiming Social Security Later?” Boston College Center for Retirement Research Working Paper 2017-3. Hurd, Michael and Susann Rohwedder. 2012. “Economic Preparation for Retirement.” Investigations in the Economics of Aging. Ed. David Wise. University of Chicago Press: Chicago, Illinois. John, David. 2010. “Disparities for Women and Minorities in Retirement Saving.” Retirement Security Project, The Brookings Institution: Washington, DC. Johnson, Richard, Karen Smith, Damir Cosic, and Claire Wang. 2017. “Retirement Prospects for the Millennials: What is the Early Prognosis?” WP 2017-17. Center for Retirement Research at Boston College: Chestnut Hill, Massachusetts. Kahn, Lisa. 2010. “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy.” Labor Economics. 17(2):303-316. Katz, Lawrence and Alan Krueger. 2016. “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015.” NBER Working Paper No. 223667. Kennickell, Arthur B. and Annika Sundén. 1997. “Pensions, Social Security, and the Distribution of Wealth.” Finance and Economics Discussion Series Paper 1997-55. Board of Governors of the Federal Reserve System: Washington, DC. Kochhar, Rakesh and Richard Fry. 2014. “Wealth Inequality Has Widened Along Racial, Ethnic Lines Since End of Great Recession.” Pew Research Center: Washington, DC. Kotlikoff, Laurence and David Wise. 1984. “The Incentive Effects of Private Pension Plans.” Issues in Pension Economics. 283-336. Ed. Zvi Bodie, John Shoven and David Wise. University of Chicago Press, Chicago, Illinois. Looney, Adam and Constantine Yannelis. 2018. “Borrowers with Large Balances: Rising Student Debt and Falling Repayment Rates.” The Brookings Institution: Washington, DC. Mackenzie, George A. (forthcoming). “Does the United States Face a Retirement Crisis?” Pew Research: Washington, DC. Malmendier, Ulrike and Stefan Nagel. 2011. “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?” Quarterly Journal of Economics. 126(1):373-416. Masterson, Thomas, Ajit Zacharias, and Edward Wolff. 2009. “Has Progress Been Made in Alleviating Racial Economic Inequality?” Levy Economics Institute Working Paper. Levy Economics Institute: Annandale-on-Hudson, New York. Matthews, TJ and Brady Hamilton. 2016. “Mean Age of Mothers is on the Rise: United States, 2000-2014.” NCHS Data Brief No. 32. US Department of Health and Human Services, National Center for Health Statistics. McKernan, Signe-Mary, Caroline Ratcliffe, Eugene Steuerle, and Sisi Zhang. 2014. “Impact of the Great Recession and Beyond: Disparities in Wealth Building by Generation and Race.” Urban Institute: Washington, DC. Mitchell, Olivia S., Robert Clark, and Raimond Maurer, eds. 2018. How Persistent Low Returns Will Shape Saving and Retirement. Oxford University Press. Morisi, Teri. 2016. “Why More People Ages 55+ are Working.” US Department of Labor Blog. (November 18). Munnell, Alicia H. 2015. “The Average Retirement Age—An Update.” Center for Retirement Research at Boston College: Chestnut Hill, MA. Munnell, Alicia H., Wenliang Hou, and Geoffrey T. Sanzenbacher. 2016. “How Much does Housing Affect Retirement Security? An NRRI Update.” Center for Retirement Research at Boston College: Chestnut Hill, MA. Munnell, Alicia H., Wenliang Hou, and Geoffrey T. Sanzenbacher. 2018a. “National Retirement Risk Index Shows Modest Improvement in 2016.” Center for Retirement Research at Boston College: Chestnut Hill, MA. Munnell, Alicia H., Wenliang Hou, and Geoffrey T. Sanzenbacher. 2018b. “Trends in Retirement Security by Race/Ethnicity.” Center for Retirement Research at Boston College: Chestnut Hill, MA. National Academy of Sciences. 2015. “The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses.” Committee on the Long-Run Macroeconomic Effects of the Aging US Population. National Academies Press: Washington, DC. Pang, Gaobo and Mark Warshawsky. 2014. “Retirement Savings Adequacy of US Workers.” Benefits Quarterly. 2014(First Quarter). Pence, Karen M. 2002. “401(k)s and Household Saving: New Evidence from the Survey of Consumer Finances.” Finance and Economics Discussion Series Working Paper 2002-06. Board of Governors of the Federal Reserve System: Washington, DC. Pence, Karen M. 2006. “The Role of Wealth Transformations: An Application to Estimating the Effect of Tax Incentives on Saving.” Contributions to Economic Analysis and Policy. 5(1). Pew Research Center. 2011. “Twenty-to-One: Wealth Gaps Rise to Record Highs Between Whites, Blacks, and Hispanics.” Pew Research Center: Washington, DC (July 26). Poterba, James. 2014. “Retirement Security in an Aging Society.” NBER Working Paper No. 19930. Cambridge, MA. Poterba, James, Steven Venti, and David Wise. 2015. “What Determines End-of-Life Assets? A Retrospective View.” NBER Working Paper No. 21682. Cambridge, MA. Rhee, Nari. 2013a. “Race and Retirement Insecurity in the United States.” National Institute on Retirement Security: Washington, DC. Rhee, Nari. 2013b. “The Retirement Savings Crisis: Is it Worse than we Think?” National Institute on Retirement Security: Washington, DC. Scholz, John Karl and Kara Levine. 2003. “U.S. Black-White Wealth Inequality: A Survey.” Institute for Research on Poverty, University of Wisconsin – Madison: Madison, Wisconsin. Scholz, John Karl and Ananth Seshadri. 2009. “What Replacement Rates Should Households Use?” Michigan Center for Retirement Research Paper No. 2009-214. Scholz, John Karl, Ananth Seshadri, and Surachai Khitatrakun. 2006. “Are Americans Saving Optimally for Retirement?” Journal of Political Economy. 114(4): 607-643. Shapiro, Thomas, Tatjana Meschede, and Sam Osoro. 2013. “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide.” Institute on Assets and Social Policy Research Brief. Brandeis University: Waltham, Massachusetts. Shapiro, Thomas, Tatjana Meschede, and Sam Osoro. 2014. “The Widening Racial Wealth Gap: Why Wealth Is Not Color Blind.” The Assets Perspective. Eds. Reid Cramer and Trina R. Williams Shanks. Palgrave Macmillan: New York. Song, Jae and Joyce Manchester. 2007. “Have People Delayed Claiming Retirement Benefits? Responses to Changes in Social Security Rules.” Social Security Bulletin. 67(2): 1-23. Stock, James and David Wise. 1990. “Pensions, the Option Value of Work and Retirement.” Econometrica. 58(5):1151-1180. Summers, Lawrence H. 2016. “The Age of Secular Stagnation: What It Is and What to Do About It.” Foreign Affairs, February 15. Taylor, Paul, Rakesh Kochhar, Richard Fry, Gabriel Velasco, and Seth Motel. 2011. “Wealth Gaps Rise to Record Highs Between Whites, Blacks, and Hispanics.” Pew Social & Demographic Trends. Pew Research Center: Washington, DC. Thompson, Jeffrey P. and Gustavo A. Suarez. 2015. “Exploring the Racial Wealth Gap Using the Survey of Consumer Finances.” Finance and Economics Discussion Series 2015-076, Board of Governors of the Federal Reserve System: Washington, DC. US Bureau of Labor Statistics. 2018. “Contingent and Alternative Employment Arrangements— May 2017.” US Department of Labor: Washington, DC. US Census Bureau. 2015. “Millennials Outnumber Baby Boomers and Are Far More Diverse Census Bureau Reports.” Release Number CB15-113. US Census Bureau: Washington, DC. US Census Bureau. 2017. “Table MS-2. Estimated Median Age at First Marriage, by Sex: 1890 to the Present.” US Department of Commerce: Washington, DC. US Census Bureau. 2018. “2017 National Population Projections Datasets.” US Department of Commerce: Washington, DC. VanDerhei, Jack. 2014. “What Causes EBRI Retirement Readiness Ratings to Vary: Results from the 2014 Retirement Security Projection Model.” Employee Benefit Research Institute Issue Brief No. 396. VanDerhei, Jack and Craig Copeland. 2010. “The EBRI Retirement Readiness Rating: Retirement Income Preparation and Future Prospects.” Employee Benefit Research Institute Issue Brief No. 344. Vespa, Jonathan. 2017. “The Changing Economics and Demographics of Young Adulthood: 1975-2016.” Current Population Reports: US Census Bureau. Welch, Finis. 1979. “Effects of Cohort Size on Earnings: The Baby Boom Babies’ Financial Bust.” Journal of Political Economy: 87(S65–S97). Wolff, Edward N. 2018. “The Decline of African-American and Hispanic Wealth since the Great Recession.” NBER Working Paper No. 25198.