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Boomers at the Bottom: How Will Low-Income Boomers Cope with Retirement?

As population aging and rising health costs place increasing strain on government fiscal resources, the prospects for baby boomers who will be at the lower end of the income distribution in retirement raise special concerns. This AARP Public Policy Institute publication by Barbara A. Butrica, Eric J. Toder, and Desmond J. Toohey of The Urban Institute uses the Dynamic Simulation of Income Model (DYNASIM) to project wealth and income at age 67 for low-income boomers. The economic status at retirement in terms of wealth accumulation, poverty levels, net worth, and income replacement rates is then compared for low-income adults in four birth cohorts: older retirees (born 1926-1935), younger retirees (born 1936-1945), leading boomers (born 1946-1955), and trailing boomers (born 1956-1965).

The report finds that, because of long-term projected growth in real earnings, low-income boomers will have higher real incomes in retirement than their predecessors and a lower incidence of poverty. Typical leading boomers will have higher income replacement rates at retirement and will be more likely to have enough income to replace 75 percent of their earnings than previous generations of retirees. However, typical trailing boomers will have much lower replacement rates in retirement than leading boomers (although about the same as earlier retirees) and will be less likely to have enough income to replace 75 percent of their earnings than leading boomers. In fact, replacement rates for trailing boomers will be about the same as those for older retirees—reversing the improvement over time.

The DYNASIM model starts with a self-weighting sample of 103,072 individuals from the 1990-1993 Survey of Income and Program Participation and ages this sample in yearly increments to 2050, using parameters estimated from longitudinal data sources, integrating important trends and differentials in life course processes. (98 pages)