The Scary Truth About Seniors and Money
I realize that Pew is a very prestigious outfit, but Pew's garbage is still garbage. It's report on wealth by age group, or at least the interpretation that it and others have given this report, fits the bill.
A couple of years ago, Pew did an analysis that gave breakdowns of wealth by age group. It found that the median household over the age of 65 had $170,500 in net worth. I was actually pleased that they came up with this number, since it meant that the projections that I had done more than two years earlier with my colleague David Rosnick were almost right on the nose. It's always gratifying to see other researchers independently corroborate your findings.
But what was remarkable about this report was that the Pew researchers took this number as evidence of the affluence of the elderly. The study points out that this was a 42 percent real increase from the 1984 level. By contrast, households under age 35 saw their median net worth fall by 68 percent to just $3,700. This disparity in wealth by age continues to be the take away from this report in the media.
To realize the absurdity of this position, try thinking for a moment. The bulk of people who are now turning age 65 do not have a defined benefit pension. (They did in 1984.) This means that the only income they have is their Social Security check, which averages a bit over $1,200 a month. Right off the bat, $100 a month is subtracted to pay for their Medicare Part B premium. This means that our high living seniors have an income of $1,100 a month, plus their $170,500 in net worth.
Is this rich? My guess is that 90 percent of the reporters who have covered this Pew study have no clue what net worth means. The $170,000 figure includes every asset that seniors own. That means everything in retirement accounts and other personal savings, the value of their car and the equity in their home. To put this in perspective, the median house price is roughly $180,000. That means that if our typical senior household sold off every other asset they held they would have roughly enough money to pay off their mortgage. Then they would be entirely dependent on their Social Security check to support themselves.
Do the reporters covering this story really think this is a picture of affluence? Will they be happy if they have a retirement where their entire income is their Social Security check?
When David Rosnick and I did our projections we took this as evidence that most seniors and those soon to be retired (the situation looks worse for those near retirement) were likely to be struggling to make ends meet in their old age. Remarkably Pew has managed to convince the country's top reporters that $170,500 in assets can make a person rich, even when it takes $400,000 in annual income to make a person rich when we are talking about raising taxes. This is truly incredible.
I should also point out that the other side of this picture is nonsense as well. Young people never have much wealth, it is not a good measure of their well-being. The 68 percent drop in the wealth of the under 35 population basically doesn't mean anything. (Like many of my friends, I had negative wealth through most of my younger years due to student loans. By age 35, I had probably just barely crossed into positive territory. With a PhD in economics I did not fear for a life in poverty. Many other professionals will be in the same boat.)
What matters far more to young people than their wealth are their labor market prospects. These are indeed awful. However, this is due to the incredible incompetence of the folks running economic policy who are too busy yapping about deficits to notice that the unemployment rate is still 7.9 percent. And yes, unemployment disproportionately affects the young. And the policies (trade, labor, patent, financial etc.) that redistribute income upward will work to the disadvantage of vast majority of young people.
Anyhow, there is a real bad picture facing today's young, but it has nothing do with affluent seniors.