TREND WATCH: What’s Happening? The latest Survey of Consumer Finances reveals that Americans across the economy made broad-based gains in wealth and income from 2013 to 2016. These gains have gone disproportionately to consumers age 75+, who now have the highest median net worth of all age groups for the first time ever.
Our Take: These gains are the culmination of a decades-long trend that has seen older Americans amass a huge relative advantage in wealth over the young. It’s a new reality that’s turning seniors into pillars of financial support for their children and grandchildren as well as changing public perceptions of old age. We expect this golden age for “senior” seniors to come to a close no later than the mid-2020s, as the less fortunate late-wave Boomers begin to cross the age 75 threshold.
According to the Federal Reserve’s latest Survey of Consumer Finances, U.S. families’ wealth and incomes grew across the board between 2013 and 2016. Thanks to the ongoing bull market, the gains in wealth were bigger than the gains in income—and most of these gains went to seniors. In fact, households headed by those age 75 and older saw the largest increases of any age bracket in both mean and median net worth.
This latest good news for the elderly comes atop 30 years of rapid wealth growth among older Americans. As a result, the net worth of older families now towers over that of younger families.
INSIDE THE LATEST SCF FIGURES
The new Federal Reserve numbers reflect broad-based gains that cut across the economic spectrum. In 2016, the median net worth of American households was $97,300, up 16% from 2013 after adjusting for inflation. Mean net worth also rose nearly 26% to $692,100. The figures represent a welcome shift from the years immediately following the recession, when wealth declined for many families.
But the fruits of the recovery have been spread unevenly across age groups. Faring the best are the oldest families led by those age 75+—an age bracket largely occupied by the Silent Generation. (The G.I. Generation, born 1901-24, now comprises barely 7% of Americans age 75 and older.) From 2013 to 2016, this age bracket experienced a 32% increase in median household net worth and a staggering 60% increase in mean net worth. Today, the net worth of a typical age 75+ (Silent) householder is $264,750. This amount shrinks moving down the age ladder: Comparing median net worth between households, the Silent are roughly 1.3 times better off than Boomers, more than twice as well off as Xers, and 23 times better off than Millennials.
The post-recovery gains made by older Americans echo this age bracket’s strong financial performance over the past several decades. Since 1983, families led by those age 75+ have seen their real net worth grow sevenfold, by far the biggest gains made by any age bracket. (The next-biggest gainers, 65- to 74-year-olds, roughly quadrupled their net worth over the same time period.)
But working-age adults have not fared nearly as well. In fact, today’s Xer-led families have a lower real median net worth than like-aged families did back in 1995. In fact, since 2001, the median net worth of every age bracket except for the 75+ has actually declined: The medians for households under age 35 and ages 35 to 44 both plunged by more than 30%, for example, while the median for households age 75+ rose by 26%.
One reason why the Silent Generation fares so well in these median comparisons is that its wealth is more evenly distributed than younger generations (i.e., its Gini coefficient is lower). One quick indicator of inequality is the ratio of mean to median. Among 75+ households, the ratio is 4.0. Among younger age brackets, it rises—to a peak of 6.2 and 5.8 among 55-64 and 45-54 households, respectively. And one important reason for this greater wealth equality: The Silent are more likely to own their own home than any younger age bracket. Fully 83% of 75+ households have positive equity in a primary residence—versus only 74% of late-wave Boomers, 63% of Generation X, and 33% of Millennials.
Yet even if you look at means rather than medians, the Silent are doing pretty darn well. Their average net worth per household, at $1,067,000, is virtually tied with early-wave Boomers, only about $100,000 behind late-wave Boomers, and higher by far than any younger bracket.
By type of asset, Silent wealth doesn’t differ much from that of younger generations. The typical Silent home is worth $280,000—only a bit less than those owned by Boomers and Xers (which average more in the $300-350K range). The bigger difference is that a greater share of the Silent own these homes and that, with mortgages less than half the size, they owe much less on them. As for vehicles? The Silent are nearly as likely to own a car as Boomers and Xers—and actually slightly more likely to own one as Millennials (82% versus 80% of all households). Their auto debt (again) is only about one-third the amount owed by younger generations.
On the financial side of the ledger, forget any notion that these elders are “spending down.” Financial asset ownership averages $538,000 per household. (Keep in mind we’re including family heads in their late 80s and 90s!) That’s only slightly less than late-wave Boomers (55-64), at $576,000. And it is vastly more than early-wave Xers (45-54), at $310,000, or any younger age bracket.
Economists may also want to give their theories of life-cycle portfolio preference a serious rethink. In fact, 75+ households are more invested in equities than any younger age bracket—both in the share of households directly owning any stock (19%) and in the average stock ownership across all households (nearly $100K). Even including stock held indirectly by mutual funds and retirement accounts, these “late elders” give today’s 50-somethings a serious run for their money and easily lap today’s 40-somethings.
On a broad scale, looking at averages rather than medians gives us a way to visualize the graying of wealth in America. The Silent and G.I. Generations comprise 22.7 million people whose combined total household net worth amounts to $16.2 trillion. Gen Xers and Millennials, by contrast, comprise over seven times as many people (163.2 million) whose total net worth ($27.9 trillion) is less than twice as large.
The relative affluence of today’s elderly is historically unprecedented. Never before have Americans age 75 and older had a higher median household net worth than that of any younger age bracket.
Today, the typical 80-year-old household has twice the net worth of the typical 50-year-old household. As recently as 1995, they were about equal. Earlier, 50-year-olds were worth more—with the disparity growing larger the further you go back in time. The Silent came of age in an era (the 1950s and the early 1960s) when the elderly were vastly more impoverished than younger Americans, which ultimately triggered calls to declare a federal “war” on their destitution. (When LBJ described the Great Society, he used the terms "our poor" and "our elderly" interchangeably.)
The latest Federal Reserve numbers line up with other measures illustrating retirees’ good fortune over the past several decades. In recent decades, poverty rates among seniors have been gradually declining—both absolutely and relative to younger age groups. In 1959, nearly 35% of Americans age 65 and older fell below the poverty line; by 2016, just 9% did. The richest of the rich are graying, too. In 1985, 12% of Forbes’s richest 400 Americans were under age 50—and 4% were under age 40. Today those figures are 8% and 3%, respectively.
The Silent ended up in this enviable position thanks to a combination of extraordinary luck and behavioral choices that have come to define this generation’s life story.
As young adults coming of age after World War II, the Silent were guided by a strong sense of personal risk aversion. They kept their heads down and tried to play by the rules, both in their own lives and as political leaders. (They acquired the name “Silent” in the early 1950s by not speaking up during the McCarthy era for fear that any misstep would go down on their “permanent record.”) They married and had children early—earlier, in fact, than any other generation since at least the Civil War. The typical Silent adult was a stable, well-educated professional in good health—characteristics that have undoubtedly contributed to this generation’s good fortune.
Their straight-and-narrow choices also benefited hugely from historical timing. Massive public investments in higher education during their youth made college loans, even for doctors and lawyers, unheard of. Entering the workforce during the American High, they were paid well relative to older workers thanks to their small numbers and excellent credentials. And payroll deductions for senior benefits back then were tiny (less than 4% until the late 1960s).
They planned ahead seriously for their own retirement, however, and signed up young for the generous defined-benefit pension plans that have since been “frozen” for Boomers and disbanded for younger generations. Universal conscription for males during the 1950s and ‘60s endowed veteran status (and its attendant federal benefits) on a greater share of males in this generation than on males of any younger generation, including Boomers.
Most fortunate of all, their midlife high-savings decades roughly coincided, from the early 1980s through the early 2000s, with the greatest bull market ever in both stocks and bonds. After riding this bull, the Silent retired and sold out just before the crash hit in 2008. Its last birth cohort reached age 65 in 2007.
Through it all, they faced less pressure than younger generations to keep up with ever-flashier living standards, and fewer opportunities to go into debt. For most of their lives, banks were places where people saved, not borrowed—and no one ever heard of HELOCs, auto leasing, or “rewards cards.”
Today, the Silent are much more likely than younger generations to be living on guaranteed cash or in-kind income sources (such Social Security, Medicare, DB pensions, and annuities) whose present value isn’t even included in the Fed’s SCB data. As for the financial assets that are included, the Silent has benefitted the most from the super-easing of Fed monetary policy over the last decade. It is often said that low interest and earnings yields hurt seniors. Correction: Such financial repression hurts future seniors—that is, younger generations still trying to acquire wealth. But it hugely benefits the senior generation that has already acquired wealth. Once again, the Silent have been blessed with a perfect location in history.
Along the way, they have aged into the healthiest, wealthiest generation of elders that has ever lived. As early as 1980, the (Silent) demographer Richard Easterlin famously called his peers a “fortunate generation.” More recently, Elwood Carlson wrote a book on the Silent entitled The Lucky Few: Between the Greatest Generation and the Baby Boom.
All these references to luck may be a bit unfair. Yes, this generation was dealt a good hand. But they have also played it well. What’s more, they have been joined to some extent by the relative good fortune of early-wave Boomers, today age 65-74. Later than that, the party is over.
Retail: Marketers set their sights on the elderly. Don’t imagine that the rising affluence of these elders has gone unnoticed by corporations retailing goods and services. For perhaps the first time, advertisers are pouring ad dollars into drawing consumers in their 70s, 80s, and beyond. Advertising Age even spotlighted a recent string of campaigns featuring octogenarians from global brands like Nike and Poland Spring. (The article’s title poses a question: Is “oldvertising” the next big thing? The answer, it appears, is a resounding “yes.”)
Family: Grandparents foot the bill. Meanwhile, at home, the Silent and early-wave Boomers have become economic anchors for America’s new renaissance in multigenerational family living. Many routinely pay for extended-family vacations, fund 529 plans to cover college costs, or subsidize their grown Boomer or Xer kids. In fact, according to a recent report from the Kenan Institute, Americans age 65+ are more than twice as likely to be caring for non-elderly family members in their household (15.1%) than they are to be receiving care themselves (6.7%). Only 2.2% are receiving “nursing home” care in an institution.
The Silent began embracing their role as hands-on grandparents (and now as great-grandparents) in the 1990s, when many young families were rocked by divorce or drug abuse. Whether by offering cash, babysitting services, or financial advice, older Americans have never been in a better position to help. A recent TD Ameritrade survey reported that grandparents spend an average of $2,383 annually on their grandchildren—an amount that includes household items like clothing and toys along with heftier expenses like college savings and vacations.
Political discourse: Policymakers must turn toward the future. The growing affluence of the elderly underscores the lack of progress that younger age brackets have made over the past several decades. Around the world, generational inequity is emerging as a political flashpoint.
Feeding the growth of anti-establishment sentiment are young people impatient for the government to prioritize their generation by championing future-oriented policies. Class divides are being replaced by age divides. This divide took center stage in Britain’s last election, when Labour Party leader Jeremy Corbyn won strong support among Millennial voters after pledging to abolish university tuition fees and promising massive state investment in higher education and infrastructure. Young adults in Southern Europe live with their parents at unprecedented rates to receive indirect support from their parents’ pensions. Tensions are also high in Japan, whose aging and shrinking population has spurred major pension reforms meant to slow the transfer of wealth that are set to go into effect next year.
In America too there is a mismatch between the graying of wealth and national policies, which are still steeply tilted away from the young and toward the old. Over the next decade, benefits for seniors (through programs like Social Security and Medicare) account for more than the entire projected rise in federal spending as a share of GDP. The default rule, established from the 1930s through the 1970s, is that the young should be taxed to pay for the old.
Informally, however, money is more likely to be flowing in the opposite direction: In a 2009 Pew survey, more than half (51%) of parents age 65+ said they’d given their children money within the past year. Only 14% said the reverse was true. With the elderly’s growing wealth advantage, these programs may only be worsening the ever-expanding inequality gap. Yet given the political stature of entitlements, any challenges are sure to cause an outcry.
WHAT THE FUTURE HOLDS
So how much longer will the nation’s 75+ elderly occupy their current position as the wealthiest Americans? Hard to say, of course. A market crash would clearly pull down the net worth of the very old more than that of the very young (who have little financial net worth to speak of): What quantitative easing giveth, quantitative tightening may taketh away. Radical changes in tax or spending policy—perhaps touched off by a market crash—could also adversely impact seniors, though it’s hard to imagine these changes not being introduced gradually.
Yet let’s assume away all such accidents of history. If we look only at generational aging, it’s fair to say this golden age of elder affluence, which arose around 2015, will start closing rapidly around 2025. Why? One dynamic that has been pushing up the net worth of 75+ bracket in recent years has been the “aging out” of the less prosperous G.I. Generation (many of whom still came of age during the Great Depression). By 2025, the G.I.s will be gone.
A more important dynamic will be the “aging in” of Boomers. For roughly the next decade, the relatively prosperous early-wave Boomers will be crossing the age 75 threshold. By 2025, it will be the less prosperous late-wave Boomers (today age 55-64). Late-wave Boomers have underperformed early-wave Boomers at every age: They’re less educated, have acquired fewer assets, are less likely to qualify for retirement benefits, and have more debt. The same cohort group which is now starting to pull down the economic welfare of the “young old” will, by then, be entering the category of “older old.” (For an extended discussion of this shifting wealth gradient and a look at what’s to come, see this paper I co-authored for the Fed Board of Governors in 2015.)
In time, the misfiring late stage of the Boomers’ retirement years will take the luster away from this phase of life. But for now, the 75+ story is all about the Silent, the generation which continues to coast on a streak of wonderful fortune luck that has propelled them—like Warren Buffett writ large—from a childhood of Winnie the Pooh to sunset years presiding over fortunes beyond anything they ever imagined.