The extraordinary rise in the wealth of older American households

https://www.nber.org/papers/w34131

by wslh • 11 months ago

43 84 11 months ago

"Social security" including actual Social Security, Medicare, etc is a wealth transfer from the poorest Americans (young people) to the richest Americans (old people).

throwway120385• 11 months ago

But also it's insurance for the many older people who didn't benefit from any of the accumulated gains their age peers made over their lifetimes.

jonny_eh• 11 months ago

It should be strengthened and available to everyone.

pdntspa• 11 months ago

One day you will be old and get to benefit from that wealth transfer

ahmeneeroe-v219• 11 months ago

Likely not. I don't think it will be solvent by that time.

mathiaspoint• 11 months ago

Not the rate things are going. Death rates among younger Americans have been very high and it's well known the government doesn't have enough revenue to sustain this.

It's got to go. It's a shame people were lied to but the reality is we can't keep things the way they are.

Analemma_2• 11 months ago

No, actually, I won't. Social Security will implode long before I ever see a penny of it.

darth_avocado2• 11 months ago

I’m still waiting for the wealth transfer from “stay in school, work hard and you will be able to afford a comfortable life” that was supposed to happen in my 20s and 30s. So I’m not so sure about it happening through SS when I’m 65.

kube-system18• 11 months ago

The point of social security is not to prop up average wealth, but a guarantee to prop up the poorest individuals.

ahmeneeroe-v219• 11 months ago

Is that what it actually does today in the US?

Analemma_2• 11 months ago

It's a textbook example of the classic political problem (and I don't just mean in democracies, every system is vulnerable to this) where subsidies and handouts are extremely sticky and almost impossible to get rid of, even when the underlying condition has changed and the original motivation for the subsidies no longer applies. Social Security made sense in a world where you had a 10:1 worker-to-dependent ratio and people rarely lived for very long after retirement.

But right now it's exactly the opposite: the dependency ratio is cratering, people can live on SS for decades, and the Boomers are hugely rich while their grandchildren can't afford a house. We desperately need to completely invert Social Security and instead have massive wealth transfers from the old to the young. But that's politically quite impossible, so this perverse situation remains.

ahmeneeroe-v219• 11 months ago

Totally agree. Distributed costs, concentrated benefits.

RhysU• 11 months ago

...instead have massive wealth transfers from the old to the young...

Free public schooling through 12th grade is one such transfer.

SirFatty• 11 months ago

Except all the money taken from my check each and every payday. So yeah, wealth transfer...

mindslight• 11 months ago

While you're not wrong, focusing on social security instead of the massive bankster handouts for the past 40 years is fighting over scraps and really distracts from discussing the actual problem of monetary inflation driven wealth centralization. Nobody is getting rich from social security - it basically covers living expenses, if you're lucky. And the 15% income tax isn't responsible for destroying personal financial situations - rather it's the extreme asset inflation and corresponding rampant hyperfinancialization (eg ballooning rent, insurance) that have made so many people effectively poor.

RickJWagner• 11 months ago

Social Security is a progressive tax. Workers with lower wages get a relatively larger portion compared to the workers that had a higher paycheck.

neom2• 11 months ago

This is just another version of the same thing we see on the front page a couple times a week at this point because it's a OECD-wide trend...

“Wealth is aging.” in some manner over and over and over again... OECD, academics, ECB etc showing the thing, older cohorts control a seriously disproportionate share of national wealth. Doesn't matter if it's USA, Canada, NZ/AUS, EU etc.. Homeownership is flat for the young, rising for the elderly. Rising mortgage leverage for the young, falling for the elderly. Debt-to-income ratios are very high for younger cohorts, again on the front page it shows up weekly in some flavour of the U.S. and U.K. with student loans + mortgages- in Canada it’s primarily mortgages + consumer debt. Everywhere globally, younger folks are face considerably higher prices (inflated?) relative to income, an environment of tighter lending, and again... much higher student debt in us and uk (I suppose education less so in parts Europe and Canada, yet consumer debt there is rampant).

And young people are not having kids at all.

What's to be done? I really ask: What's to be done about it?

Good reading: https://www.nobelprize.org/uploads/2018/06/modigliani-lectur...

BJones12• 11 months ago

What's to be done? I really ask: What's to be done about it?

There's a document that gets posted every so often here called The Return Rate on Everything. In it, it says that the returns on capital outweigh economic growth, meaning capital gets more concentrated, at all times except during war.

So the answer to your question would seem to be 'war'.

neom2• 11 months ago

You weren't kidding: https://hn.algolia.com/?q=The+Return+Rate+on+Everything

I'd not seen it, thank you kindly for sharing. :)

ahmeneeroe-v219• 11 months ago

Wow, how have I missed this. Intuitively makes sense since capital still can't fight wars, so "labor" commands a premium.

roughly• 11 months ago

So the answer to your question would seem to be 'war'.

As the saying goes, it’s easier to imagine the end of the world than the end of capitalism.

riku_iki• 11 months ago

What's to be done? I really ask: What's to be done about it?

property/estate taxes which will be directed to safety nets for youth: medical insurance, education, childcare, foodstamp and 1br with public transit to business centers. This will propel access to opportunities for youth by XX times, and also crash housing market and cool down stock market.

bix6• 11 months ago

So we need the old transfer some wealth to the young. The old mostly have assets like stocks and houses. The young can’t earn enough to accrue assets.

So tax the wealthy / old higher. Increase social safety nets. Increase wages. Give all employees equity. Stop share buy backs. Force CEO to median / lowest employee comp maximums. Break up monopolies. Make school cheap / free. Build more housing. Stop monocropping.

I can go on and on with ideas but I think the political will / capture prevents this so I guess we’ll just topple over instead.

jleyank5• 11 months ago

Wealthy people of any age have most of the money…. Check the prices of assisted care to see where home equity will go for the old. And ignore the yowls of the kids looking for the inter generational transfer of wealth.

As far as stocks and bonds go, I thought the HN readership was into that. Can’t penalize somebody who has the advantage of time re equity growth on the basis of age. If you want to be fair, again, tax wealth.

quickthrowman• 11 months ago

Removing the step-up in cost basis at death and actually taxing estates would help quite a bit. Unfortunately the wealthy write the rules so don’t expect either of those to change.

jleyank5• 11 months ago

Everybody pissing and moaning about the old folks better save their money as they’ll be old in a small number of decades. The us has lowered its tax regime over these decades without lowering the costs associated with being old. And it’s replaced defined benefit pensions with defined contribution. Those who could and did save have done well. Those who didn’t, well, with luck they have a roof over their head and food.

As a data point, the typical social security from somebody who was in a pink collar profession is like $1500-2000/month. Somebody who maxed out social retiring at 70 gets like $5100/month. Assuming they can cover expenses until 70. These numbers are partially taxable.

ahmeneeroe-v219• 11 months ago

without lowering the costs associated with being old

Not exactly accurate. The costs of being old at the same QoL and for the same lifespan as a 65+ person in 1935 is probably cheaper than it's ever been.

The problem is we're living much longer and our QoL is higher and "healthcare" to achieve that is stupendously expensive.

jleyank5• 11 months ago

Other countries reduce the cost of meds or services for people above a certain age, or have age/income relatd tax benefits and payments. The us is the wealthiest country in the world, so doing so would have been a mere exercise of political will. Instead, pushing money to the top has been the goal.

lapcat6• 11 months ago

The summary talks about two "smoking guns" for wealth increase in the oldest age group: home ownership rate and stock portfolio value.

To me, though, these seem like effects rather than causes. In other words, the older age group has enough money to afford these things. I doubt that the oldest age group is somehow vastly better than others at picking stocks to buy; their stock portfolios are larger because they have more money to invest in the same stock market as everyone else, right? And according to the last chart in the paper, on the final page, the home ownership rate of the under 35 group is close to the same in 2022 as it was in 1983, though it dropped lower in 2016.

Thus, I get the impression that the first factor mentioned in the summary, mortgage debt, may be the main driver. In other words, presumably, it's taking much more for the youngest group to pay off their mortgages than it did for the oldest group, because the price of housing has increased significantly. And money going into mortgage payments is money not going into other investments such as stock.

jt2190• 11 months ago

I think that’s what the paper was trying to express: That the older cohort got more leverage from the increase in housing prices because they had more invested when prices shot up.

Summary and Concluding Remarks
The paper focuses on the slippage in the net worth ratio among households under age 35 relative to all households between 1983 and 2022 and its phenomenal rise among households aged 75 and over. Based on differential leverage between the two groups (the much higher debt- net worth ratio among younger families compared to older ones), we would have expected exactly the opposite – namely, that the net worth of younger households should have risen relative to older ones. Indeed, the average real rate of return on net worth of the youngest age group over years 1983-2022 was 5.67 percent while that of the oldest was 3.29 percent. What factors explain these seemingly perverse results?
The first is increasing net home equity for the elderly. The increase in the ratio of mean net home equity to the overall level over 1983- 2022 explains a substantial 38.3 percent of the relative gain in net worth of the 75 and over age group but very little for that of the youngest group. The second is surging mortgage debt among the youngest households. This explains 297 percent (.160/.054), of the actual decline in the group’s mean net worth ratio – that, is almost three times the actual decline. Its relative decline also accounts for a significant 35.2 percent of the increase in the oldest group’s mean net worth ratio. However, it should be stressed that these results are not additive across the various factors considered in the analysis
Third, the homeownership rate might well be close to a “smoking gun” for the oldest age group. It shoots up by 11.5 percentage points for this group, and the group’s relative wealth holdings expand by a sizeable 50.4 percent. Likewise, relative to the overall average homeownership rate, that of the oldest enlarges by 8.9 percentage points from 6.0 to 14.9 percent. The fourth is the fantastic growth in stock holdings among the oldest age group, which could constitute another smoking gun. The value of the group’s stock portfolio relative to the overall average skyrockets from 0.56 to 3.47, which accords with the sharp increase in its relative net worth, and accounts for a staggering 269 percent of its gain in net worth relative to the overall average.
Fifth, among the youngest age group, despite dire press reports, educational loans fail to appear as a significant factor. As a fraction of overall mean student debt, it actually fell from 2.45 in 2007 (the first date of available data) to 1.66 in 2022, so that the trend is contrary to that of the group’s relative net worth. Moreover, subtracting the change in the group’s mean educational debt over 2007- 2022 from its 2007 net worth ratio lowers the group’s mean net worth ratio by a rather trivial 0.006. 24 References Bricker, Jesse, Jacob Krimmel, Alice Henri

kube-system18• 11 months ago

They're causal -- old people predominantly aren't buying new homes or investing in new equities, they collected those assets during their working years when they were cheap, and both of those asset classes have appreciated an extraordinary amount since the middle of their working careers.

lapcat6• 11 months ago

old people predominantly aren't buying new homes

What do you mean exactly by buying new homes?

Obviously the average length of home ownership for the oldest group would be much longer than for the youngest age group. How new were their homes when they were first purchased, and has that number changed over time? I have no idea. But if the value of older homes is increasing, it means that someone is purchasing those older homes.

or investing in new equities

If I'm reading the tables right, it looks like the oldest group received their largest jump in net worth during 2019-2022 and actually did worse than all other groups in 2016-2019.

ahmeneeroe-v219• 11 months ago

old people predominantly aren't buying new homes

This is not true at all. People over 60 bought ~46% of homes.

https://www.nar.realtor/research-and-statistics/research-rep...

eltondegeneres2• 11 months ago

The survey defines the top one percent as "Net worth of $13,390,060 or more," which sounds greatly skewed versus what I assume is a lower median net worth at the 99th percentile. I don't think 1 in 100 Americans have over $13 million in assets.

kube-system18• 11 months ago

That doesn't seem unreasonable to me. Any middle-class boomer who was planning to retire and paid off their mortgage can expect to be in the 7 digits of net worth.

Net worth is a weird number for many people to interpret because it is pretty intangible -- most can't cash it out.

darth_avocado2• 11 months ago

A lot of boomers are sitting on 7 figure homes that they refuse to downsize from that’s adding to their “net worth”. Most of these homes are in disrepair and need six figure upgrades before they are even up to code, but on paper they’re all millionaires.

em5002• 11 months ago

Not sure what "a lower median net worth at the 99th percentile" means (median is net worth level at the 50th percentile), but 1 in 100 American households (not individuals) indeed have over $13 million net worth: https://fred.stlouisfed.org/series/WFRBL99T999309

This threshold has about doubled since 2010, which should not be too surprising as house prices more than doubled and the S&P500 increased six fold in the last 15 years.

eltondegeneres2• 11 months ago

~"Minimum Wealth Cutoff for the 99th to 99.9th Wealth Percentiles" in that link reads to me as 1 in 1,000 households have a net worth over $13 million, not 1 in 100.~

edit: seems like I'm wrong

throwaway22032• 11 months ago

I feel as if I've been reading some variant of this for the last 30 years (not just American, UK too).

But then what of it? I had more money at age 20 than I did at 15, more at 25 than 20, more at 30 than 25, and so on and so forth.

When I'm 70 I'll have more in real terms than I do now. Each year, barring some sort of disaster, most people work and bring in enough to survive whilst the surplus stacks up.

The main difference in my mind driving the rate of change in the proportions is just that the median person is more aware of things like the stock market, real estate, etc, now.

Basically, people are acting more efficiently. I'm more savvy than my parents were; they are/were proper working class "spend it as soon as it comes in, it might be gone" whereas I'm more like "never touch the capital, diversify".

(There are some issues, like how in the UK pensioners are given _extremely_ generous benefits, but I don't think that's relevant to the global picture).

The extraordinary rise in the wealth of older American households

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