Housing Wealth Puts Millennials Closer to Retirement Readiness

What You Need to Know

Those born in the 1980s started their careers in weak labor markets.
Adding to the challenge is that Social Security’s full retirement age has been increased to 67.
The improvement in wealth holdings was not just concentrated among the wealthy.

A new paper published by researchers with the Center for Retirement Research at Boston College finds that earlier wealth shortfalls for millennials have closed, thanks largely to a jump in home values during the COVID-19 pandemic.

Millennials started their careers in weak labor markets, so initially they lagged behind baby boomers and Gen Xers at the same ages in life events and wealth. That picture has changed, according to the researchers, but it’s not totally clear what this good news means for retirement security.

The reason why? Housing prices may reverse, and few retirees tap their home equity for consumption in retirement, anyway. So, the question is still open as to whether millennials face a more challenging retirement readiness outlook relative to prior generations.

The Millennial Experience

The focus of the new paper is the segment of millennials who were ages 31 to 41 in 2022, which means those born from 1981 to 1991. These individuals are compared to Gen Xers and late boomers when they were the same ages.

For context, the Gen Xers were the same ages in 2010, covering those born from 1969 to 1979. The late boomers were the same ages in 1995, which covers those born from 1954 to 1964.

Several factors distinguish millennials from those in earlier generations, according to the researchers.

“They were the first full generation to grow up with computers,” the authors note. “Social scientists tend to characterize them as self-confident and optimistic since their parents tended to be attentive and supportive.”

Millennials in this age band are more ethnically diverse than previous cohorts, with the share identifying as white declining from 72% for late boomers to 55% of millennials.

“Millennials are also more educated than previous cohorts,” the authors point out, “with almost half of women and 40% of men having a college degree, compared to only a quarter of late boomers and a third of Gen Xers.”

It follows, then, that the higher level of educational attainment would bode well for work, earnings and wealth accumulation. The reality is that millennials have faced substantial economic challenges.

“The group examined here turned 21 between 2002 and 2012, which meant that they were coming out of school during a period that included the bursting of the dot.com bubble and the Great Recession,” the report notes. “This experience was particularly hard on millennial men, who had labor force participation rates below those in earlier cohorts.”

Where Millennials Stand

As the authors note, the low wealth of millennials has been a source of serious concern given that they will live longer and need to support more years of retirement than previous cohorts. Adding to the challenge is that Social Security’s full retirement age has been increased to 67, meaning they will receive lower benefits relative to pre-retirement income.

Fortunately, data from the Federal Reserve’s 2022 Survey of Consumer Finances shows a dramatic reversal in the fortunes of millennials. Specifically, the wealth-to-income ratio for millennials is now far higher than those of other generations at this life stage.

The Bottom Line

Even with more student debt, millennials have more net wealth relative to income in their 30s than Gen Xers and late boomers had, the authors note.

“Most of the improvement in their balance sheets is due to the rapid increase in housing prices during the pandemic,” the paper concludes. “They also have higher non-housing wealth as well.”

Other factors aside, millennials’ good fortune relies primarily on housing.

“The house is an illiquid asset, and few people take advantage of their home equity to support their consumption in retirement,” the authors conclude. “Hence, it is not clear the extent to which housing equity should be counted as retirement saving.”