Wealth Inequality and Retirement Preparedness: A Cross-Cohort Perspective

Abstract

High and rising US wealth inequality underscores the need to revisit a perennial concern in policy circles: retirement preparedness. Our cross-cohort approach to studying retirement adequacy is based on relative wealth measures, meaning how the wealth distribution of one cohort compares to the cohorts ahead of them at the same age. We introduce relative rank distributions that show where individuals are in terms of the cohorts ahead of them at the same age, and percentile point comparisons that show how wealth levels at various percentiles vary across cohorts by age. We find that early Baby Boomer’s wealth is generally on par with or above 1930s cohort wealth at age 60. There is, however, evidence of relative wealth declines in the bottom of the wealth distribution for mid-late Boomers and Gen-Xers relative to earlier cohorts at younger ages, which is consistent with rising wealth inequality across and within generations. Social security is an important offset to relative wealth declines at the bottom of the wealth distribution, but those benefits are not expected to be fully payable for the youngest cohorts.

Keywords: Baby Boomers, Gen X, relative wealth distribution, wealth inequality

JEL Classification: D15, G11, J26