Hold the Tears: Retirees Came Through Recession Best

Older folks came through the recession with their wealth and income more intact than other age groups. The difference maker: traditional defined-benefit pensions.

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Let’s stop sobbing for the supposed struggling retiree. They are fewer in number than we’ve been led to believe, and on average elders have emerged from the Great Recession in far better shape than any other generation, new evidence suggests.

From 2007 to 2010, median income for families headed by people aged 62 to 69 rose 11.9% to $56,924; for households headed by people over 70 the increase was 15.6% to $31,512, according to a paper from the Federal Reserve Bank of St. Louis. Every other cohort experienced a decline.

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Households headed by people under 40 saw a 12.4% drop to $39,644; for middle-aged households aged 40 to 61 the decline was 11.9% to $56,924, the study shows. These figures were reported in the Washington Post, which asserted:

The study demolishes the widespread notion that older Americans need exceptional protection against spending cuts because they’re poorer and more vulnerable than everyone else.

The figures are eye opening, for sure. The common image of retirees is one of struggle with health issues, rising healthcare costs and being trapped in a low interest rate environment that makes reliable fixed income all but impossible to secure. Yet the St. Louis Fed isn’t the first to pull back the curtain on mythical grandma.

A Gallup survey this summer found that 75% of retirees are financially comfortable right now. That tops the 67% of working people who claim to be financially comfortable and it suggests that whatever economic hardships have befallen elders; they may be less painful than those that have afflicted working folks.

It turns out low rates, in particular, haven’t been such a burden because many retirees either don’t have interest-bearing investments or have moved up the risk scale to get the income they need, among other reasons. Social Security benefits, for example, continue to pay at a steady inflation-adjusted rate no matter what happens in the markets.

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The St. Louis Fed findings jibe perfectly with the Gallup results, observing that older generations are most likely to have traditional pensions, which like Social Security benefits, are generally unaffected by moves in the market. According to the researchers:

The income and wealth of the typical older adult generally has held up better than those of young and middle-aged families, both during the recent financial crisis and recession and over a two-decade span reaching back to 1989. One important factor appears to be lower susceptibility among older families to economic and financial turbulence, both recently and in previous downturns. Underlying their greater resilience, older families rely more heavily on more stable sources of income, such as Social Security and pension wealth.

The report also gives a nod to older generations’ propensity to own more conservative investments and be better diversified. Gallup credits older generations greater willingness and flexibility to scale back their lifestyle when needed. (Kids and a mortgage are tough to outmaneuver.) So Grandma deserves some kudos. But she may not merit all the concern directed her way.

As the St. Louis Fed said: “Being young was a significant risk factor during the downturn, regardless of a family’s race, ethnicity, or education level.” Financially speaking, being older worked out relatively well.

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