Contrary to popular belief, loss of equity in their homes since 2007 has hurt adults in their late thirties more than their Baby Boomer parents, contributing to fears that they will not have enough income and assets for their retirement, according to a new Pew Research survey released today.
Americans today are more worried about their retirement finances than they were at the end of the recession in 2009, especially younger and middle-aged adults rather than among those closer to retirement age-a major shift in the pattern that had prevailed at the end of the recession.
About four-in-ten adults (38 percent) say they are “not too” or “not at all” confident that they will have enough income and assets for their retirement, up from 25 percent in a Pew Research survey conducted in late February and March of 2009. Among adults between the ages of 36 and 40, 53 percent say they are either “not too” or “not at all” confident that their income and assets will last through retirement. In contrast, only about a third (34 percent) of those ages 60 to 64 express similar concerns, as do a somewhat smaller share (27 percent) of those 18 to 22 years old.
Fears over retirement are driven by a companion Pew Research analysis of data collected by the Federal Reserve Board in its Survey of Consumer Finances. For most Americans, equity in their homes represents most of their wealth and the collapse of housing values in the middle of the past decade sent personal wealth into a nose dive for most homeowners, regardless of age.
Overall, the Consumer Finances survey found that median home equity-the fair market value of a home less the amount of the outstanding mortgage and other liens-fell by about a third (32 percent) from 2007 to 2010. And U.S. Census data released in June found that most of the decline in median wealth between 2005 and 2010 can be attributed to sinking home values.
Median home equity-so-called housing wealth-declined the most for homeowners ages 35 to 44. Between 2007 and 2010, the equity of homeowners in this age group was cut in half (52 percent). In contrast, housing wealth fell by 30 percent among those 55 to 64 and by 20 percent among adults 65 and older.
Adults 35 to 44 years old have a much greater share of their wealth represented by their home equity because they have not yet had the time to accumulate financial wealth. Moreover, these younger adults have had less time to build equity, so the market collapse cut into a greater share of a smaller base than for longtime homeowners. Finally, this age group benefitted less than older adults from the rise in stock market values since many sold their holdings when stocks fell in 2009.
The S&P 500 Index peaked at 1,576 in October 2007 but then fell to a modern low of 667 in March 2009. Since then, the stock market began a steady rise, closing at 1,258 on the last day of December 2010. It now stands at about 1,450, nearly back to its earlier peak.
During this decade of wild market swings, ownership of stocks and retirement accounts, such as 401(k) and thrift accounts, fell among most age groups. But the declines were greatest among those ages 35 to 44. The proportion of adults in this age group who directly held stocks declined by nine percentage points from 2001 to 2010, with half of this drop occurring before 2007. In contrast, the share of adults 65 and older who directly held stocks declined only 3 percentage points from 2001 to 2010, from 21 percent to 18 percent.
The proportion of 35- to 44-year-olds who held stocks indirectly through retirement accounts also disproportionately fell by 9 percentage points, about double the decline among those younger than 35 or between 45 and 54 years old (4 percentage points for both groups). As a consequence, those in the 35 to 44 age group have benefited less from the rapid increase in stock prices since 2009 because they were less likely than their older counterparts to own stock and retirement accounts.