When the stock market began to crater in 2008, an 85-year-old client told me, "I'm not worried about me — I don't have a job to lose, and most of money is in bonds and CDs. But I am very concerned about my kids and my grandkids."
I thought about how prescient that comment was after reading a new report from the Pew Charitable Trust's economic mobility project, "Retirement Security Across Generations."
The report explores how the Great Recession affected the wealth and retirement security of baby boomers relative to younger and older age groups. As it turns out, the downturn inflicted the greatest financial damage on Generation X — those born between 1966 and 1975 — who are now 38 to 47 years old.
Here is Pew's breakdown of Great Recession median net worth loss by age category (between 2007 and 2010):
Depression babies (born 1926-1935): 0
War babies (born 1936-1945): lost 20 percent
Early boomers (born 1946-1955): lost 28 percent
Late boomers (born 1956-1965): lost 25 percent
Gen-Xers (born 1966-1975): lost 45 percent
Why the great disparity? Both early and late boomers benefitted from a mostly robust economy and bull market in stocks and bonds from 1982-1999, as well as a housing market that provided them with ample equity in their homes. In fact, boomers had higher overall wealth, financial net worth and home equity in their 50s and 60s than Depression or war babies had at the same ages.
But the two older groups benefitted from a mindset that was dead set against debt. Over the last two decades, Depression and war babies have been shedding debt, while boomers and Gen-Xers have been accumulating it. As of 2010, war babies' asset levels were 27 times higher than their debts. In contrast, late boomers' assets were about four times higher than their debts, and Gen-Xers' assets were about double their debts.
With those bleak statistics, it's no wonder the study found that typical Gen-Xers are less prepared for retirement than their older cohorts. To compare retirement readiness of each age group, Pew calculated "replacement rates," or the ability of retirees to use their wealth and savings to replace pre-retirement income. There are various opinions on what is the "right" replacement ratio, ranging from 70 to 100 percent, depending on individual circumstances. The general consensus is to use an 80 percent replacement rate as a goal.
At the median, Gen-Xers will have enough resources to replace only about half of their pre-retirement income; late boomers will replace about 60 percent. Those levels are dramatically lower then the older cohorts who will or have replaced 80-100 percent of their incomes.
Because these are medians, the data suggest that at least half of late-boomer and Gen-Xer households fall below these already-low levels, which means that many younger Americans are facing an insecure retirement. Erin Currier, Pew's director of the Economic Mobility Project, noted that Gen-Xers are "facing a genuine possibility of downward mobility, if they don't change course."
Changing course may mean that younger generations will likely have to save more, borrow less and work longer, but they know that already. The younger generations need only look at their parents and grandparents to realize that Pew's conclusion is spot on: "Early boomers may be the last generation on track to exceed the wealth of the cohorts that came before them and to enjoy a secure retirement."
Since I don't like to end on a negative note, let me point to a glimmer of hope: The Pew study ends at 2010, and the economic, stock and housing recoveries since then have likely improved these results for many. And of course, time is always on the side of younger generations, providing them with the ability to adjust their behavior and plan for a more secure future.
Jill Schlesinger, a certified financial planner, is a CBS News business analyst. She welcomes emailed comments and questions.