Economics Group
Boom or Bust?
Baby Boomers in their ‘Golden Years’
Rising Age-Dependency Ratio
Population Age 65+ as a Share of Population Ages 20-64
A
40%
33%
30%
10%
38%
2036
2046
25%
21%
20%
38%
2006
2016
2026
Labor Force Participation Rate Ages 65+
20%
18%
16%
14%
12%
10%
2016:
19.4%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Social Security Trust Fund
Employment Rates for Seniors by Education
Depletes in 2034
Employment-Population Ratio Ages 65+, 2016
$3,500B
25%
20%
Actual
$3,000B
14%
9%
Projections
$2,500B
$2,000B
No H.S.
Diploma
High School
Diploma
Some College
Bachelor's or
Higher
$1,500B
$1,000B
Retirement Account Savings
$500B
Median for 55-64 Year Olds (2013 Dollars)
$102k
$67k
$43k
1989
$49k
1992
$112k
$107k $103k
$72k
$49k
1995
1998
$0B
1980
2001
2004
2007
2010
2013
85%
80%
75%
70%
1990
2000
2010
2020
2030
Homeownership Rate 55-64
2016: 75%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Source: Congressional Budget Office, Federal Reserve Board, U.S. Department of Commerce, U.S. Department of Labor, U.S. Social Security
Administration and Wells Fargo Securities
The sheer size of the Baby Boomers has led this generation to shape the economy at every stage of life. For some, the
economic progress of the past 50 years has yielded substantial financial success; for others, the challenges that lie
ahead are daunting. In this series, as the Baby Boom generation nears retirement in full-force, we examine how this
transformative generation will impact the economy in the years ahead.
February 28, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Boom or Bust? The Baby Boomers in Their Golden Years
The sheer size of the Baby Boomers has led this generation to shape the economy at every stage of life. As
Boomers enter their retirement years, we examine how their aging will impact the economy in the years ahead.
Baby Boomers were aptly named; the birth rate surged in the United States
following the end of World War II, creating a generation more than
60 percent larger than the one that preceded them (top chart). Today, the
Boomer generation, usually defined as those born between 1946 and 1964,
straddles the traditional retirement age of 65 or so (middle chart). In 2011,
the leading edge of the Boomers turned 65, a trend that will accelerate in
the years ahead. A Boomer will turn 65 roughly every 9 seconds in 2017,
and by 2046 the ratio of adults age 65+ to those age 20-64 will rise to
38 percent from just 25 percent today (bottom chart).
A rising age dependency-ratio has important implications. Both the level
and composition of spending change as individuals age, as does the type of
employment and extent of labor force engagement. Boomer retirement
preparedness will not only affect retirees but also younger generations who
may directly support their Boomer parents or indirectly support them
through their taxes. On the policy front, a lower worker-to-beneficiary ratio
will create sustainability challenges for programs like Social Security and
Medicare. The housing market will face new opportunities and challenges
as the Boomers’ preferences and needs change as they age. From a growth
perspective, more elderly adults and slower growth in the working-age
population present a supply side challenge that, all else equal, lowers
potential GDP and makes 3-4 percent real GDP growth even more elusive.
Millennials have seized the spotlight in recent years, just as the Boomers
did 50 years ago. Despite this, the post-war generation will face sizable
challenges in the years ahead, and their choices, as well as the response
from policymakers, will be tightly linked to the U.S. economy as a whole.
We will explore some of the opportunities and obstacles facing the aging
Boomer dynasty in the ensuing reports of this series.
Surging Birth Rates Led to the Baby "Boom"
Births per 1,000 Population
30
30
U.S. Birth Rate: 2015 @ 12.4
25
25
20
20
Baby Boom
15
15
10
10
5
1930
5
1940
1950
1960
1970
1980
1990
2000
2010
U.S. Adult Population Distribution
Millions of Persons in Age Group, 2015
6
6
G.I. Gen: 1%
Gen X: 25%
Millennials: 32%
5
Boomers: 30%
Silent Gen: 11%
5
4
4
3
3
2
2
1
1
0
0
18
28
38
48
58
68
78
88
98
Rising Age-Dependency Ratio
Population 65 and over/Population Age 20-64
45%
Actual
40%
45%
CBO
Projections
40%
38%
38%
35%
35%
33%
30%
30%
25%
25%
25%
21%
20%
20%
15%
15%
Population Age 65+/Population Age 20-64: 2046 @ 38.4%
10%
10%
00
04
08
12
16
20
24
Source: U.S. Department of Commerce, Congressional Budget Office and Wells Fargo Securities
28
32
36
40
44
Thousands
The Boomer Half-Century
Fifty years ago, as the post-World War II baby boom came to an end, Time
magazine recognized the profound demographic shift in the offing and
named “The Inheritor,” or those under the age of 25, as its “Man of the
Year.” The “Baby Boomers,” as this unprecedentedly large generation
would later be called, went on to shape the economic, political and cultural
path of the United States. From the rise of female participation in the labor
force to the information revolution to the housing bubble, the Boomers
have been at the forefront of economic developments over the past halfcentury. For some, the economic progress of the past 50 years has yielded
substantial financial success; for others, the challenges that lie ahead are
daunting. In this series, as the Baby Boom generation nears retirement in
full-force, we will examine how this transformative generation is poised to
once again reshape the U.S. economy.
Here Comes the Boom
March 02, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Boomer Retirement Savings: Hope I Die Before I Get Old
Boomer retirement savings—if any—are well short of their goals. Social Security will provide some support,
but many Boomers are leaving money on the table by claiming before they are eligible for full benefits.
More Years in Retirement, but Will They Be Good Years?
In determining how the aging of the Boomers is once again reshaping the
economic landscape, it is useful to first take stock of their retirement
positions. If aiming to retire at the traditional age of 65, Boomers will need
to have their savings last an average of 19 years, five years longer than a
new retiree when the Boomers were born.
Not only are Boomers facing more years in retirement, but they have had to
take a more active role in their saving. The shift to defined contribution
plans has left more Boomers responsible for setting aside savings and
directing investments. Defined benefit plans, whose own finances remain
tenuous, are available to only 27 percent of workers. At the same time, low
interest rates in recent years have curbed investment returns and saving
has been challenged by weaker job and income growth, not to mention the
rapid rise in higher education costs as Boomers send their kids to college.
401(k) and IRA Savings Falling Short
Together, this has left Boomers’ savings looking woefully inadequate for a
roughly 20-year spell in retirement. A 2015 study by Wells Fargo found that
the median retirement savings goal for Boomers ages 55-59 was $500,000.1
Yet, the median value of savings in retirement accounts (401(k)s, IRAs or
other portable accounts) was $103,200 for households age 55-64 in 2013—
or about $430 per month if evenly drawn out over 20 years (middle chart).
What’s more, only 60 percent of households age 55-64 had any retirement
savings at all. While this is up from 48 percent a generation ago, the share
has fallen steadily since 2004, in addition to the percentage of workers
covered by defined benefit plans declining.
Social Security to the Rescue?
The lack of personal savings and access to/take-up of employer retirement
plans implies Boomers will rely more heavily on Social Security as a source
of income in retirement. However, Social Security payments only replace
about 41 percent of pre-retirement income for medium earners, suggesting
many Boomers will see a substantial drop-off in spending power unless
they save more now or shorten retirement by working longer.
The structure of Social Security already encourages Boomers to work a little
longer by pushing back the age in which “full” benefits can be received to at
least 66. Payments rise further for every month claiming is delayed up until
age 70. Yet, a majority of individuals claim benefits or disability before
their full retirement age (FRA), reducing monthly payments by 5-7 percent
for every year claimed before FRA (bottom chart). Altogether, 45 percent of
households age 50-59 were at risk of not being able to maintain their preretirement lifestyle in 2013.2 In our next note, we will examine whether
other Boomer assets may provide more support.
Defined Benefit vs. Contribution Plans
Private Industry Access
80%
80%
Defined Benefit Plan Access: 2016 @ 18%
Defined Contribution Plan Access: 2016 @ 62%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Retirement Account Savings
55-64 Year Olds, Thousands, 2013
90%
$140
Median Value: 2013 @ $103,200 (Right Axis)
Percent with Account: 2013 @ 59.3% (Left Axis)
$120
75%
$100
60%
$80
45%
$60
30%
$40
15%
$20
0%
$0
1989
1992
1995
1998
2001
2004
2007
2010
2013
Social Security Take-up by Age
2015 Distribution of New Beneficiaries by Age
40%
40%
Male
39%
35%
Female
33%
30%
30%
FRA in
2015
25%
25%
21%
20%
18%
15%
12%
20%
17%
14%
14%
15%
11% 10%
10%
10%
5%
4%
3%
2%
5%
3%
0%
0%
62
63-64
65
66
67-69
70+
Disability
Source: U.S. Dept. of Labor, Federal Reserve Board, U.S. Social Security Administration and Wells Fargo Securities
2016 Wells Fargo Retirement Survey. Oct. 11, 2016. Prepared by Harris Poll.
Alicia H., Wenliang Hou and Anthony Webb (2014).“NRRI Update Shows Half Still Falling Short." Center for
Retirement Research at Boston College. December 2014, No. 14-20.
1
2 Munnell,
35%
March 07, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Boomer Balance Sheets: Nothing Great about That Recession
Boomer balance sheets took a big hit during the housing bust. The asset side of the ledger has recovered
somewhat, but small financial holdings for the typical Boomer suggest a challenging retirement for many.
Boom and Bust for the Boomers
However, higher frequency, aggregate data can mask divergent trends
beneath the surface, such as distributional or demographic patterns. For a
more detailed look at Boomer balance sheets, we must turn to the Federal
Reserve Board’s Survey of Consumer Finances (SCF), a triennial survey for
which the most recent data is 2013. This data show that, as of 2013, the
“typical”, or median, Boomer had acquired less wealth than previous
generations. Real median household net worth for individuals age
55-64 was the lowest on record (middle chart). Older Boomers fared a bit
better, but their real net worth also remained below its 2007 peak.
The decline in home values as a result of the housing bust played a large
role in the contraction of wealth. Between 2007 and 2013, the real median
value of primary residence asset holdings declined roughly 22 percent for
Boomer households. Nonfinancial asset holdings, of which a primary
residence is often the biggest chunk, tend to comprise a larger share of
asset holdings than financial instruments (bottom chart). As a result of the
bust, the Baby Boomers experienced an unexpected decline in what for
many is their most valuable asset. Although the housing bust’s scars remain
a challenge for some, steady home price appreciation over the past few
years should help the Boomers, as the equity built in a home can be used to
sustain living standards during retirement, either by downsizing to a less
expensive home, a reverse mortgage, or other means.
Another challenge for the Boomer generation as it enters retirement is the
divide between those who have relatively sizable asset holdings and those
who do not. The disparity between the median and mean financial asset
holdings for Boomer households highlights this phenomenon. The “typical”
Boomer approaching the age of 65 had just $52,000 in financial asset
holdings as of 2013. Average holdings for this age bracket, however, were
more than $400,000, suggesting this generation has a segment of outliers
with financial asset holdings several times greater that of the “typical”
Boomer. This dynamic highlights that, even with the recent gains, the
challenges facing some Boomers are unlikely to be fully resolved by the
solid asset appreciation experienced over the past few years.
Source: Federal Reserve Board and Wells Fargo Securities
Real Per Capita Household Net Worth
Thousands of 2009 Dollars
$300
$300
Real Per Capita Net Worth: Q3 @ $252,422
$250
$250
$200
$200
$150
$150
$100
$100
$50
1959
$50
1966
1973
1980
1987
1994
2001
2008
2015
Median Household Net Worth
$350K
By Age of Head of Household, Thousands of 2013 Dollars
$350K
55-64 Age Bracket
$300K
65-74 Age Bracket
$300K
$250K
$250K
$200K
$200K
$150K
$150K
$100K
$100K
$50K
$50K
$0K
$0K
1989
1992
1995
1998
2001
2004
2007
2010
2013
Household Assets
$400K
Median Asset Holdings, By Age, Thousands of 2013 Dollars
$400K
Financial Assets
$350K
Nonfinancial Assets
$350K
$303.6K
$300K
$300K
$260.7K
$250K
$250K
$200K
$200K
$150K
$150K
$100K
$50K
$72.0K
$52.7K
$100K
$50K
$0K
$0K
Age 55-64
Age 65-74
Thousands
In the aggregate, household balance sheets have recovered their losses from
the Great Recession. As illustrated in the top chart, real per capita
household net worth has surpassed its pre-recession peak. Rising home
prices, a recovery in the stock market and household deleveraging have all
contributed to the rising trend in net worth. For instance, today the S&P
500 is more than 50 percent above its pre-recession peak, and household
debt as a share of disposable income is the lowest it has been since the early
2000s. On this basis, households have made clear gains that will augment
their financial situations in retirement.
March 09, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Till Debt Do Us Part: How Leveraged Is the Typical Boomer?
The Boomers are more leveraged than previous generations were ahead of retirement. We examine the
liabilities side of the balance sheet for this group and explore some of the challenges they may face.
The Borrowing Boomers
Unsurprisingly, the Baby Boomers have less debt than younger generations
who are currently in their prime working years and still climbing the ladder
of life. However, the typical Boomer has more debt at this point in their life
relative to previous generations. As of 2013, 79 percent of households age
55-64 and 66 percent of those age 65-74 had debt of some kind (top chart).
The long-run trend in the top chart signals a rising share of each successive
generation approaches the traditional retirement age with debt of some
sort. In addition, not only do more Boomers hold debt, the typical value in
real dollars has also risen. The Great Recession pushed debt holdings for
this age bracket even higher in 2010 than the bubbly 2007 period. Real
debt holdings for the typical boomer receded markedly in 2013, although
this in part reflects a decline in homeownership.
Median Household Debt Holdings
84%
Debt Holdings: 2013 @ $63,400 (Left Axis)
$80K
82%
Share with Debt: 2013 @ 78.7% (Right Axis)
80%
$70K
78%
$60K
76%
$50K
74%
$40K
72%
$30K
70%
$20K
68%
$10K
66%
$0K
64%
1989
Like the asset side of the balance sheet, housing comprises the bulk of debt
for the average Boomer. A bit under half of Boomers hold debt secured by
their primary residence (middle chart), with the median value for Boomers
age 55-64 amounting to about $100,000. Credit card balances and
installment loans (for vehicles for example) are also common, but median
balances are a relatively manageable $3,000 and $12,000, respectively.
Mean debt holdings are more than double the median, however, suggesting
that some Boomers are significantly more leveraged than their peers.
Old School Not So Funny for the Boomers
Student loan debt has emerged as a hot button issue for some Boomers. A
recent report by the Government Accountability Office (GAO) drew
attention to this issue, highlighting the number of people whose Social
Security checks are being reduced to pay off delinquent student debt.* The
report found that there were 114,000 people age 50 or older in fiscal year
2015 who had their benefits reduced by about $140 a month for unpaid
student loans. As the bottom chart illustrates, student loan debt has
increased in size and prevalence for older individuals. We caution,
however, about overstating the pervasiveness of the problem; according to
Survey of Consumer Finances data, only 12 percent of 55-64 year olds have
some form of student debt, with older Boomers having an even smaller
share. In addition, the 114,000 individuals age 50+ from the GAO study
represent less than 0.5 percent of Social Security beneficiaries. This
suggests that most Boomers are not grappling with a crushing student loan
burden as they enter their golden years. That said, the GAO report found
that a sizable share of those who had their Social Security benefits reduced
were either pushed below/pushed even further below the poverty line.
Further, if the trend of growing educational debt continues, the problem
will likely increase in scope over time and create further challenges for
Boomers who are already struggling with retirement preparedness.
Age 55-64, Thousands of 2013 Dollars
$90K
1992
1995
1998
2001
2004
2007
2010
2013
Type of Debt Holdings
Percentage of Families Holding Debt, By Age
Any
debt
Other
Credit card
balances
Installment
loans
Other Residential
55-64
65-74
Primary Residence
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Median Household Student Loan Holdings
Age 55-64, Thousands of 2013 Dollars
$21K
14%
Student Loan Debt: 2013 @ $19,000 (Left Axis)
$18K
Share w/Student Loans: 2013 @ 12.0% (Right Axis)
12%
$15K
10%
$12K
8%
$9K
6%
$6K
4%
$3K
2%
$0K
0%
1989
1992
1995
1998
2001
2004
2007
2010
2013
Source: Federal Reserve Board and Wells Fargo Securities
* U.S. Government Accountability Office. (December 2016). “Social Security Offsets: Improvements to Program Design
Could Better Assist Older Student Loan Borrowers with Obtaining Permitted Relief.” Publication No. GAO-17-45.
March 14, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Boomers: House of Horrors or Empty Nest in Paradise?
A decade after the housing bust, homeownership and real estate assets for Boomers have yet to recover,
limiting real estate equity to tap in retirement. The expected wave of Boomer downsizing remains a ways off.
Fewer Boomers Own a Home
Fewer Homeowners and Still Holding Debt as Retirement Looms
As Baby Boomers transition to retirement, their changing housing needs
will ripple through the real estate market. The desire to be closer to family,
cut down on maintenance or even upsize are all factors that will shape
housing decisions. The Boomers are now of the age when homeownership
rates tend to peak. However, homeownership among 55-64 year olds is the
lowest in decades and indicates this generation’s relationship with housing
will be different from prior retirees (top chart).
Lower homeownership implies a smaller share of Boomers will have home
equity to tap in retirement. For most households, their home is their largest
asset, but home values for the typical Boomer have yet to fully recover
(middle chart). Moreover, fewer Boomers own their home free and clear as
they near retirement. In 2013, only one-third of homeowners ages 55-64
had no debt on their primary residence compared to 54 percent in 1989.
Homeownership Rate By Age
85%
85%
80%
80%
75%
75%
Ages 65-69: 2016 @ 79.0%
Ages 55-64: 2016 @ 75.0%
Ages 50-54: 2016 @ 71.6%
70%
Boomer Home Values Have Yet to Recover
Downsizing, Upsizing, or Staying Put?
It’s a common assumption that as Baby Boomers reach retirement they will
downsize to smaller, more manageable and affordable housing. However, a
2015 study by Fannie Mae found little evidence of Boomers downsizing as
home sizes among this group had ticked up in recent years. 1 Similarly, the
Demand Institute found that nearly half of Boomers planning to move
actually intended to upsize, although the vast majority—nearly two-thirds—
of Boomers had no plans to move.2
Downsizing may not be entirely off the table for Boomers, but, like major
housing decisions for Millennials, the time horizon may be pushed back.
Many Boomers are working longer (the topic of our next note) or have less
equity than they thought at this point in their lives following the housing
bust. In addition, the elevated share of adult children living at home is
likely hindering some Boomers from downsizing.
With fewer Boomers planning to downsize, fears that there will not be
enough trade-up buyers to purchase their homes may be overdone. With
the majority of Boomers wanting to age in-place, single-family home
inventories look set to remain tight, barring a meaningful pickup in new
construction. In addition, there have been few signs of retirement-age
households moving into multifamily housing in recent years, with the share
of households age 65 and over living in single-family homes (owned or
rented) edging up between 2010 and 2015.
Like younger households, Boomers are moving less than prior generations
(bottom chart). For Boomers who do move, job-related reasons and the
desire for cheaper housing have taken on greater importance over the past
decade. However, the share citing the main reason for moving was to own,
not rent, has moved up since the mid-2000s, signaling the housing bust has
not led Boomers to fully give up on homeownership.
70%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Primary Residences for Households Ages 55-64
Real Median Value (Ths.) & Percent with Asset
100%
$350K
Median Value: 2013 @ 185K (Right Axis)
90%
Percent Holding Asset: 2013 @ 74.2% (Left Axis)
$300K
80%
$250K
70%
$200K
60%
$150K
50%
$100K
40%
$50K
30%
$0K
1989
1992
1995
1998
2001
2004
2007
2010
2013
Boomers Are Moving Less Frequently
Movers as a Percent of Population by Age
36%
36%
2001-2004
32%
2012-2015
32%
28%
28%
24%
24%
20%
20%
16%
12%
Today's Boomers
16%
12%
8%
8%
4%
4%
0%
0%
Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities
1 Fannie Mae Housing Insights. (2015) “Baby Boomer Downsizing Revisited: Boomers are not leaving their single-family
homes for apartments.” Volume 5, Issue 2.
2 Demand Institute Housing & Community Survey. (2013). “Baby Boomers & Their Homes.”
March 16, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Will Working Longer Solve Boomers' Retirement Shortfall?
Working longer is one key way Boomers could improve their retirement finances. While more seniors are
delaying retirement, employment trends suggest many Boomers will struggle to work past age 65.
Employment-Population Ratios
Working Longer Reaps an Array of Financial Benefits
One way to ease the retirement shortfall will be for Boomers to work longer.
In a 2016 survey by Wells Fargo, half of workers said they would need to
work until age 70 in order to save enough for a comfortable retirement.1
Pushing back retirement would indeed allow Boomers more years to save,
while at the same time reducing the number of years those savings would
need to stretch. In addition, delaying the take-up of Social Security would
boost the ultimate monthly amount of those payments. Yet is it realistic to
believe that so many Boomers will work until they are 70?
70 Is Not Yet the New 65
Older workers have been sticking around the labor force longer in recent
years, suggesting many are already delaying retirement. Employment
among workers age 65 and over has been rising since the mid-1980s (top
chart). However, among the leading edge of the Baby Boomers (ages
65-69), only 31 percent are currently employed—a long way off from the
50 percent of workers who indicate they will need to work until age 70.
While the upward trend since the 1980s garners reason for optimism that
more Boomers will be able to work past the traditional retirement age, the
pace of gains has slowed since the early 2000s. In addition, Boomers are
still trying to regain lost ground from the recession, with the share of
50-69 year olds employed remaining 2.3 points below 2008 levels.
The lower level of employment among Boomers could be chalked up to the
labor market still recovering. The unemployment rate for 50-69 year olds
averaged 3.6 percent over the past 12 months, which is still half a percent
above the lows of the past economic expansion. Labor force participation
for Boomers has also fallen since the recession and, unlike Gen X’ers and
Millennials, has not begun to turn around (middle chart).
Waiting to Retire at 70 Isn’t Always an Option
Returning to the labor market can be a hard slog for older workers. While
younger workers may take time out of the labor force to retrain during a
downturn, older workers have a shorter time horizon to recover the
investment needed to update their skills or move to a city with better job
opportunities. Employers may similarly expect fewer years to recoup the
training costs of hiring a new employee presumed to soon retire.
Perhaps not surprisingly then, workers age 55-64—the core of the Baby
Boomers today—typically face the longest spells of unemployment (bottom
chart). Job-seekers age 65 and over face slightly shorter periods of
unemployment but are also more prone to drop out of the labor force,
blurring the line between “retirement” and a labor market unable to
support the employment needs of seniors.
Not all Boomers are doomed, however. In our next note, we will explore the
type of worker likely to remain employed past age 65.
Percent of Population Employed, 12-Month Moving Average
32%
32%
28%
28%
24%
24%
20%
20%
16%
16%
12%
12%
65-69: Feb @ 31.0%
65+: Feb @ 18.6%
8%
8%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Labor Force Participation By Age
12-Month Moving Averages
90%
90%
85%
85%
80%
80%
75%
75%
70%
70%
65%
65%
60%
60%
16-34 (Millennials): Feb @ 69.3%
35-49 (Gen-X): Feb @ 82.2%
50-69 (Boomers): Feb @ 61.2%
55%
50%
50%
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Duration of Unemployment By Age
Median Duration in Weeks, 2016
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
16-19
Source: U.S. Department of Labor and Wells Fargo Securities
1
55%
2016 Wells Fargo Retirement Survey. October 11, 2016. Prepared by Harris Poll.
20-24
25-34
35-44
45-54
55-64
65-69
70-74
75+
March 21, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Which Boomers Will Be Working in Their “Retirement” Years?
Boomers that are more likely to extend their careers past the traditional retirement age of 65 are more likely to
be college educated, in less physically demanding jobs, self-employed or willing to work part time.
A Split Employment Outlook
For some Baby Boomers, working past the traditional retirement age of
65 will not be difficult. The types of workers best able to continue working
are more likely to be in jobs that already command higher earnings,
moreover. This stands to drive a further wedge between the segment of
Boomers who will be adequately prepared for retirement and choose to
work past 65, and those that are not as well positioned for retirement and
will need to work past age 65.
Education Still Pays
With earnings rising alongside of educational attainment, better-educated
seniors are more likely to stick around the workforce longer as potential
earnings (i.e., the opportunity costs of retirement) rise (top chart). Jobs in
which college degrees are commonplace also tend to be less physically
demanding, limiting the need for older workers to retire for health reasons.
Since older workers who stay employed are likely to be more educated,
earnings growth among Boomers and other workers over the age of 65 has
been relatively strong in recent years. Only a decade ago, full-time working
seniors took home $129 less per week than prime-age (25-54) workers, but
that gap has now closed. Younger Boomers (ages 55-64) have also seen
their paychecks grow faster than prime-age workers in what were already
their peak earning years (middle chart).
Employment Rates for Seniors
Employment-Population Ratio for Ages 65+, 2016
45%
45%
39%
40%
38%
35%
40%
35%
30%
30%
27%
25%
25%
25%
20%
20%
20%
14%
15%
15%
9%
10%
10%
5%
5%
0%
0%
No H.S.
Diploma
High School
Diploma
Some
College
Bachelor's
Master's
Professional
Degree
Doctoral
Degree
Full-time Worker Median Weekly Earnings
By Age, 4-Quarter Moving Averages
$1,000
$1,000
$900
$900
$800
$800
$700
$700
$600
$600
Dare to Go It Alone
With years of experience under their belts, Boomers willing to strike out on
their own will also be better able to extend their career. Workers over the
age of 65 are three times more likely to be self-employed, helped in part by
using retirement savings as a source of start-up capital. Like younger
generations, however, the share of older workers who are self-employed has
been sliding since the early 2000s, as finances have generally been more
constrained and access to employer-sponsored benefits remains a key
incentive for staying in the workforce.
The Part-Time Bridge
Working part time will allow Boomers who are interested in scaling back
their job responsibilities but not starting their own business to stay in the
workforce, while at the same time offering one way to maintain a routine.
Nearly 40 percent of seniors worked part time in 2016 compared to
17 percent of workers ages 16-64. While some seniors would prefer to work
full time, only a relatively small share of part-timers report being
underemployed (4 percent versus 19 percent for part-time workers under
age 65). It is worth noting, however, that the share of seniors working full
time has risen markedly since the mid-1990s and is another sign that many
older workers are successfully delaying retirement (bottom chart).
Source: U.S. Department of Labor and Wells Fargo Securities
$500
$500
Prime Working Age (25-54): 2016 @ $871
Peak Earning Years (55-64): 2016 @ $954
Traditional Retirement Age (65+): 2016 @ $864
$400
$400
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Full-Time vs. Part-Time Workers
Percent of Employed Workers Age 65+ by Work Schedule
65%
65%
60%
60%
55%
55%
50%
50%
45%
45%
40%
40%
Full-Time: 2016 @ 60.6%
Part-Time: 2016 @ 39.4%
35%
35%
77
80
83
86
89
92
95
98
01
04
07
10
13
16
March 24, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Boomer Spending: Bracing for the Slowdown
Most Boomers are now of an age where household spending begins to decline, which has begun to weigh on
consumer spending. Healthcare and housing are accounting for a growing share of senior spending.
Household Spending by Age
Consumer Spending: Boomers Shift from Tailwind to Headwind
Spending follows a predictable pattern as consumers age. As earnings rise
and families grow, household spending increases through middle-age
before falling as the kids move out and the house (ideally) gets paid off.
Over the past few decades, falling outlays among older households were
masked by the rising earning and spending power of the Boomers as they
entered their prime working years. With adults age 65+ expected to rise
from 20 percent of the adult population to 25 percent over the next
10 years, there is no offset to the slowdown in senior spending this time
around.
More than three quarters of the Boomers are already over the age of 55,
when household spending begins to decline (top chart). With retirementage households spending 25 percent less than younger households, the
aging of the Boomers stands to weigh on consumer spending, the
powerhouse of the U.S. economy, in the years ahead. Spending could be
hampered further in the near term if Boomer households try to shore up
their retirement savings by putting more money away now, although this at
least would limit the drag on spending further down the road.
What Areas of Spending Will Be Hit Hardest?
The degree to which businesses will need to brace for the spending
slowdown as more Boomers reach retirement age varies by industry. Not
surprisingly, one segment where spending rises with age is healthcare (outof-pocket and government). In every other major category, however,
spending among households over the age of 65 falls. Apparel, dining out
and transportation (vehicles purchases, finance charges and gasoline) see
the largest drop off, with average annual expenditures for households
65 and over falling by at least than one-third (middle chart).
Average Annual Household Expenditures, 2015
$80,000
$80,000
$70,000
$70,000
$60,000
$60,000
$50,000
$50,000
$40,000
$40,000
$30,000
$30,000
$20,000
$20,000
$10,000
$10,000
$0
$0
Under
25
Housing is also taking up a higher share of senior spending as more
households reach age 65 without having paid off their home or are renting,
leaving them exposed to future price increases (bottom chart). In contrast,
seniors are saving at grocery and clothing stores, helped by relatively low
inflation in these categories the past two decades. This should limit the hit
to discretionary spending, but won’t change the fact that Boomers will still
be spending less overall, generating a drag on consumer spending.
Source: U.S. Department of Labor and Wells Fargo Securities
35-44
45-54
55-64
65-74
75+
Senior Spending
Spending by Households Age 65+ vs. Households Under 64, 2015
Healthcare
47%
Utilities
-9%
Entertainment
-17%
Food at Home
-19%
Personal Care
-20%
Household Furnishings
& Equipment
-22%
Housing
-25%
Total
-25%
Transportation
-34%
Alcohol
-36%
Food Away
-36%
Apparel -49%
-60%
Discretionary Spending Pressured by Healthcare and Housing
But will Boomers spend the same way as older generations after turning
65? Healthcare looks set to account for a greater share of spending among
Boomers than previous generations. Rising insurance premiums have more
than offset out-of-pocket savings on prescription drugs due to Medicare
Part D. Of course, a substantial share of healthcare spending is paid for by
the government, and, with the rising number of beneficiaries, total
healthcare spending is likely to remain one of the strongest segments of
consumer spending in the years ahead.
25-34
-40%
-20%
0%
20%
40%
60%
Spending: Households Age 65+
Percent of Direct Spending, 2015
Transportation
Health Care
Owned Housing
Food at
Home
Vehicles
Entertainment
Rented Housing
Food away
from Home
1995
2015
Apparel
0%
2%
4%
6%
8%
10%
12%
14%
16%
March 28, 2017
Economics Group
John E. Silvia, Chief Economist
[email protected] ● (704) 410-3275
Sarah House, Economist
[email protected] ● (704) 410-3282
Michael Pugliese, Economic Analyst
[email protected] ● (704) 410-3156
Social Insecurity: Affording the Retirement Boom
The wave of Baby Boomers entering retirement will put significant strain on the government’s finances.
Higher taxes or lower spending to compensate are likely to influence economic growth in the years ahead.
Federal Finances: A Boomer Bust?
Many federal retirement programs, such as Social Security, were designed
as pay-as-you-go programs. Workers pay payroll taxes that are used to fund
today’s retirees; when these workers retire later in life, the next generation
picks up the tab. The unprecedented size of the Boomer generation has led
to a ‘kink’ in the system that creates fiscal sustainability challenges. As
illustrated in the top chart, federal debt as a share of the economy is
projected to skyrocket in the coming decades, with spending on retirementrelated entitlement programs a key driver of this growth. At the heart of the
problem is a declining worker-to-beneficiary ratio. In 2000 when the
Boomers were in their prime working years, there were 3.4 workers per
Social Security beneficiary. Today, that ratio is about 2.8:1 and is expected
to decline to 2:1 in the years ahead as the Boomers retire.
One bit of good news amid the doom and gloom: Contrary to some popular
belief, the Social Security Trust Fund remains intact and ended FY 2016
with about $2.8 trillion in assets (middle chart). However, the cash flow for
the program (defined here as tax revenues coming in minus outlays going
out) has been negative since 2010. As the aging of the population
continues, the Trust Fund will dwindle as reserves are utilized to meet
promised benefits. Even when the Trust Fund is gone, however, Social
Security does not simply disappear: there is still a dedicated revenue
stream via payroll taxes to keep some benefits flowing. Without any
congressional action, the Social Security Trustees project that the Trust
Fund will run dry in 2034, at which point a 21 percent cut in benefits would
occur to bring spending in line with dedicated revenues.
Not Just a Social Security Story
Medicare, which provides health insurance for the elderly, faces a dualchallenge on sustainability. Like Social Security, an aging population will
lead to a rapidly growing number of Medicare beneficiaries. Rising medical
care costs, however, will likely exacerbate the problem. The CBO projects
that spending per enrollee in Medicare will increase at an average annual
rate of 4.3 percent over the next decade, a bit faster than the anticipated
3.9 percent average annual growth in nominal GDP.
Higher taxes would help ensure the promises made to the Boomer
generation are met, but this route threatens to reduce disposable income
for prime-age adults who are the engine of the domestic economy and face
their own financial challenges, such as rising student debt and shelter costs.
Alternatively, spending for these programs could be reduced, but this
presents its own set of problems. Sixty-one percent of aged beneficiaries
received at least half of their income from Social Security in 2014,
highlighting the importance of these programs to many Boomers. For
policymakers, the longer action is delayed, the more draconian action will
have to be to address these sustainability challenges.
U.S. Debt Held by the Public
160%
CBO Extended Baseline Projections, Percent of GDP
160%
Federal Debt Held by the Public: 2046 @ 141.0%
140%
140%
120%
120%
WW II
100%
100%
80%
80%
60%
60%
40%
Civil War
WW I
40%
20%
20%
0%
1790 1814 1838 1862 1886 1910 1934 1958 1982 2006 2030
0%
Social Security Trust Fund
Billions of USD, OASDI
$3,500
OASDI Trust Fund Depleted in 2034
Actual
$3,000
Social Security
Trustee
Projections
$3,500
$3,000
$2,500
$2,500
$2,000
$2,000
$1,500
$1,500
$1,000
$1,000
$500
$0
1970
$500
$0
1980
1990
2000
2010
2020
2030
Drivers of Spending Growth
12%
Spending on the Major Health Care Programs, Percent of GDP
2.2%
Excess Cost
Growth
9%
12%
9%
1.8%
Aging
6%
6.1%
Major Health
Care Programs
6.1%
6%
Without
Aging or
Excess Cost
Growth
3%
3%
2016
Source: Congressional Budget Office, Social Security Administration and Wells Fargo Securities
2046
Wells Fargo Securities Economics Group
Diane Schumaker-Krieg
Global Head of Research,
Economics & Strategy
(704) 410-1801
(212) 214-5070
[email protected]
John E. Silvia, Ph.D.
Chief Economist
(704) 410-3275
[email protected]
Mark Vitner
Senior Economist
(704) 410-3277
[email protected]
Jay H. Bryson, Ph.D.
Global Economist
(704) 410-3274
[email protected]
Sam Bullard
Senior Economist
(704) 410-3280
[email protected]
Nick Bennenbroek
Currency Strategist
(212) 214-5636
[email protected]
Anika R. Khan
Senior Economist
(212) 214-8543
[email protected]
Eugenio J. Alemán, Ph.D.
Senior Economist
(704) 410-3273
[email protected]
Azhar Iqbal
Econometrician
(704) 410-3270
[email protected]
Tim Quinlan
Senior Economist
(704) 410-3283
[email protected]
Eric Viloria, CFA
Currency Strategist
(212) 214-5637
[email protected]
Sarah House
Economist
(704) 410-3282
[email protected]
Michael A. Brown
Economist
(704) 410-3278
[email protected]
Jamie Feik
Economist
(704) 410-3291
[email protected]
Erik Nelson
Currency Strategist
(212) 214-5652
[email protected]
Misa Batcheller
Economic Analyst
(704) 410-3060
[email protected]
Michael Pugliese
Economic Analyst
(704) 410-3156
[email protected]
Julianne Causey
Economic Analyst
(704) 410-3281
[email protected]
E. Harry Pershing
Economic Analyst
(704) 410-3034
[email protected]
Donna LaFleur
Executive Assistant
(704) 410-3279
[email protected]
Dawne Howes
Administrative Assistant
(704) 410-3272
[email protected]
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