America's richest generation got really, really lucky

A tourist on a nature trail in Lakeland Countryside at Easedale Tarn Lake in the Lake District National Park, Cumbria, UK.
Image: Robert Harding Productions/Associated Press

Jon Burkhart was born during the Great Depression, and like many members of his generation, he couldn't have been luckier. For most of their working lives, he and his wife saved 10% of everything they earned. They made some smart investments, but they also rode the postwar economy perfectly. After a 30-year career as a television producer and director in Houston, Burkhart moved in 1987 to Maui, where he and his wife bought a house. They sold it for a 300% profit in 2008, and invested most of the money in mutual funds just as the stock market was nearing a 13-year low. Today 81-year-old Burkhart — in a retirement community in Winston-Salem, North Carolina — lives far more comfortably than the elderly folks he knew as a child. "It was the most fortunate timing you could imagine," he says. "There's no way you can plan on that."

For most Americans, the economic recovery has been marked by stagnant wages, high unemployment and declining wealth. According to Federal Reserve data, the median U.S. household had a net worth of only $81,200 in 2013, down from $115,000 in 2004. But there's one group that's doing better than ever: old people. Historically one of the poorest age cohorts in the country, elderly Americans are now among the wealthiest. As of 2013, people 75 and older had a median family net worth of almost $195,000 in constant 2013 dollars, up from $131,000 in 1989, Federal Reserve data show.

This prosperity reverses decades of demographic trends. In 1959, people 65 and older had a higher rate of poverty (35%) than any other age group in the country. Now they have the lowest (9.5%), according to the U.S. Census Bureau. It used to be that "poor people were old," says Neil Howe, a demographer and president of Saeculum Research in Great Falls, Virginia. "That's a really fascinating contrast with today." The poorest Americans today are the youngest — those 35 and under — and they are getting poorer.

Many of the oldest Americans, born between 1928 and 1945, are members of the so-called Silent Generation, a term coined by Time magazine in 1951 to describe the group of people then coming of age, who were "working fairly hard and saying almost nothing." In many ways they are the forgotten, middle child of the 20th century: younger than the Greatest Generation, who fought in World War II, yet older, and much fewer in number, than the 80 million baby boomers born between 1946 and 1964. A relatively small group — about 50 million — given the low birthrates during the Depression, the Silents are the rare generation to go through life without sending one of their own to the White House. Carter, Reagan, and Bush Sr. were all from the Greatest Generation; every president from Clinton on has been a boomer.

Still, the Silent Generation has been in the sweet spot of America's economy for half a century. From 1962 through 1991, when its members were in their prime working years, the U.S. economy grew at an average pace of 3.5% a year, compared with only 2.6% since. As they've aged, the Silents have benefited from improved health care and a much more generous social safety net. Adjusted for inflation, annual federal outlays have risen from about $4,000 per person in 1960 to almost $28,000 in 2011, according to the Urban Institute. The Silents also timed their retirement perfectly. By the time the recession began to wipe out jobs in late 2007, almost all were 65 and older. That's helped make them "the richest old generation we've ever seen," says William Emmons, a senior economic adviser at the Federal Reserve Bank of St. Louis.

That title will probably go unchallenged for years to come, Emmons says. People immediately behind — including many baby boomers and most of Generation X — have seen their wealth dip significantly since the recession. Recouping what was lost before they retire will be difficult, especially since they're unlikely to see the kind of price gains for their homes and investments that their elders enjoyed for most of their lives. "The Silents have done very well, and a lot of it has just been their location in history," says Howe, the demographer. "They planned ahead, they were risk-averse, they played by the rules, and the system worked for them."

Having so much wealth concentrated in the hands of the country's oldest citizens isn't exactly a recipe for a strong economy, particularly one so dependent on consumer spending. JPMorgan Chase found that household spending peaks at age 45 and then falls in every category except health care, dropping 43% by age 75. Old people might be rich, but their big-spending years are behind them. The people who should be driving the economy, 45- to 54-year-olds, are a lot poorer than they used to be. Since 2007, the median household net worth of 45- to 54-year-olds has been cut in half, from $207,600 to $105,300.

Over the next two decades, some of those people will inherit the wealth being held by the Silent Generation. Those legacies will help, but they're probably not going to make a big difference to the broader economy. A lot of that wealth could remain "trapped in this old-age part of life," Emmons says, where a group of 95-year-olds end up leaving money to their 70-year-old kids. The effects will also likely be contained to a narrow band of what is already a wealthy — and white — slice of the population. Of those who do inherit, Emmons says, "only a small number will receive what you might think of as a life-changing amount."

This article originally published at Bloomberg here

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