How the Financial Crisis Affected Retirement Preparedness

The Congressional Budget Office says that those closest to retirement were hurt badly by the financial crisis, and their finances haven’t recovered despite the stock market recovery. The CBO only uses data through 2013, so we don’t know if the picture is better know than in this report. But those pre-retirees not only lost value in their net worths after the financial crisis but also lost the post-2007 appreciation from the 2007 peak wealth that they were counting on. The CBO blames the decline in housing prices for much of the decline, stating that home equity is a significant part of the wealth of most Americans middle-aged or older.

In part this reversed a trend from 1995 up until 2007 when median wealth for middle-aged Americans crept upwards, even surpassing seniors’ median wealth by 2001. Much was because of the increase in housing prices. The housing crash sent home equity shooting downward.

The lack of wealth is especially alarming for less-educated and lower-income Americans, who hadn’t built much wealth before the crisis. Median wealth for high school graduates increased slightly from 1989 to 2007 but those gains were wiped out by the crisis. For those with less than a high school degree, the numbers are even starker.