Cohort differences in wealth and pension participation of near-retirees

The approaching retirement of the baby-boom generation has attracted both research and public policy attention. Many social and economic changes occurred during the second half of the twentieth century, changes that are likely to affect the retirement economic security of recent cohorts in many ways. In this article, using data from the Health and Retirement Study (HRS), a longitudinal, nationally representative survey of older Americans, we compare potential retirement economic resources-pension participation and nonpension net worth-of two cohorts of near-retirees. Particularly we look at individuals born from 1933 through 1939, often referred to as depression babies, who were ages 55-61 in 1994 and the more recent cohort consisting of individuals of the same ages (55-61) in 2004, who were born from 1943 through 1949. Our findings indicate that the more recent cohort of near-retirees has a significantly higher pension participation rate over their working life, and therefore greater opportunity to establish pension income through their working life, compared with the earlier cohort (82 percent versus 64 percent). The increase in pension participation was more pronounced among the recent cohort of women, an expected outcome given the increase in labor force participation of women over the past half century. As a result, although differences by sex in pension participation remained significant, the gap has narrowed for the recent cohort of near-retirees. In addition, we find that the gap in participation rate between those in the highest and the lowest wealth quintiles has widened over time (from 22 percent in 1994 to 26 percent in 2004). For both cohorts of near-retirees, the evidence indicates that those without a pension have much lower levels of net total worth than those who report having a pension. The pattern that emerges for both cohorts is that about one-fifth of individuals aged 55-61 hold little or no wealth at all, whereas about two-fifths hold a substantial amount of wealth. In addition, housing equity, which rarely is used to finance consumption in retirement, comprises more than one-half of total nonpension net worth for about 60 percent of all households, leaving--on average less than $45,000 jointly in nonhousing wealth and IRA/Keogh assets--a much smaller amount of wealth that is readily accessible if the need arises. The fact that many near-retirees (about 40 percent) in the lowest-two wealth quintiles have no pension to potentially draw income from, coupled with the very low level of total nonpension wealth raises concern about their income security in retirement; they may be likely to rely heavily on Social Security, rely on welfare programs, or continue work in retirement.