Is Retirement Already Out of Reach for Younger Generations?

The Federal Reserve recently defended its highly accommodative monetary policies by pointing towards low inflation and high unemployment levels. The central bank’s actions have caused a perceived wealth effect by pushing equity and home prices higher, but younger generations are not participating in the rebound.

When it comes to building wealth, those under 40 years old lag behind their parents’ generation, according to a new report from the Urban Institute, a nonprofit Washington research firm. Despite the greatest financial crisis since the Great Depression, the average household net worth almost doubled between 1983 and 2010. However, the average inflation-adjusted wealth in 2010 for those born after 1970 was 7 percent below similarly aged individuals in 1983.

“If these generations cannot accumulate wealth, they will be less able to support themselves when unexpected emergencies arise or when they eventually retire,” the researchers observed. “This financial uncertainty could reverberate throughout the economy, since entrepreneurial activity, saving, and investment tend to build on a base of confidence and growing wealth.”

An old pattern is broken…