The Retirement Prospects of the Baby Boom Generation
Radner, Daniel B., Social Security Bulletin
In this article, the financial prospects of baby boomers in their elderly years are examined. The article primarily attempts to draw together and summarize results found by other researchers, but a few new estimates are presented. The consensus of the research appears to be the following. Up to this point, the baby boom generation as a whole has a higher economic status than did their parents' generation at the same ages, but this does not hold for some subgroups. When it becomes elderly, the baby boom generation as a whole probably will have a higher economic status than their parents' generation has and will have at those ages, but, again, this may not hold for some subgroups. It is uncertain whether the baby boom generation as a whole will have enough resources in retirement to maintain their preretirement standard of living without increasing their saving or retiring later, but some subgroups will be able to maintain their living standard without changing their behavior.
The baby boom generation has been of great policy interest for many years. This generation, which generally is defined as consisting of persons born from 1946 to 1964 inclusive, numbers roughly 78 million persons and constituted 29 percent of the U.S. population in 1997. When this generation was young, its size put great pressure on the educational system. When this generation becomes elderly in the 21 st century, its size is expected to strain our retirement income and health care institutions.
In this article, the financial prospects of the baby boomers in their elderly years are examined. The article primarily discusses results found by other researchers, but a few new estimates are presented. The article attempts to draw together and summarize results from several different sources, primarily from analyses that focus on the baby boom generation itself.' The reports discussed are Congressional Budget Office (1993); Easterlin, Schaeffer, and Macunovich (1993); American Association of Retired Persons (1994); Bernheim (1993); and Kotlikoff and Auerbach (1994). The discussion here generally assumes that no policy changes (for example, reductions in Social Security benefits that have not yet been legislated) will be made. Although some changes will be needed to put the Social Security program in long-term balance, the nature of the changes that will be made is uncertain. Therefore, the precise impact of the changes also is uncertain.
There is much disagreement about the retirement prospects of the baby boom generation in the studies discussed in this article. Much of that disagreement results from asking different questions and using different approaches to obtain answers. The questions that have been asked and how those questions differ are examined. Those questions include: How do the income and wealth of the baby boom generation up to now compare with the income and wealth of their parents (or other earlier cohorts) at the same age? Will the income and wealth of the baby boom generation in retirement be greater than the income and wealth of their parents (or other earlier cohorts) in retirement? Will the baby boomers be able to maintain their preretirement consumption in their retirement years?
Several important dimensions need to be considered in discussing the assessments of the baby boomers' retirement prospects. The first dimension is the type of estimate made. Actual amounts of income or wealth have been used when comparisons up to the age attained by the baby boomers are made. Amounts of income and consumption also have been projected for the baby boomers' retirement years. Those projections sometimes are made using microsimulation models. In one case, a model of saving was used to project the consumption of baby boomers in retirement. In another case, a model based on aggregates and distributions was used. Finally, there have been statements of tendencies without actual estimates. For example, it might be concluded that the income of the baby boomers in retirement will exceed that of their parents at that age because of several factors that are not quantified. …