Baby Boomers’ “Financial Exceptionalism”

Plenty has been written about the challenges that baby boomers face while heading into baby boomersretirement.  And now, researchers by JP Morgan Asset Management have shown that boomers have quadrupled their aggregate net worth since the late 1980s through an extended period of economic growth and stability during their peak earning years.  According to research released last week, the average boomer household own $253,000 of assets, 75% of them nonfinancial.

The study looks at how baby boomers’ balance sheets got to where they are today, which assets account for the growth in their wealth and what younger generations need to do if they hope to be as wealthy when they retire.  The massive accumulation of assets by baby boomers, and its impact on the lives of younger generations, is referred to as baby boomers’ “financial exceptionalism”.  Boomers are entering retirement much better off than their parents, and most likely the next generation as well.  Consider that the median household net worth for the young-to-middle aged members of Generation X has declined significantly when compared with that of similar households 20 years ago.  According to the paper, those between 35 and 44 years old today have an average net worth of $47,000, compared with $102,000 for those of a similar age 25 years ago.

The paper said that lower current income growth and expected asset returns have implied that the necessary savings rate for younger households to match the breadth of boomer balance sheets was enormous.  This would force younger generations to modify saving and investment behaviors and adjust their wealth expectations.  Nonetheless, baby boomers are still not off the hook.  They can’t rely on just financial assets, which make up just a third of the growth of their total assets, to support their current levels of consumption in retirement.

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