Hacker News Reader

Comment by michaelmrose | Hacker News Reader

To save you a click.

> As of 2019, individuals under 40 years old held just 4.9 percent of total U.S. wealth despite comprising 37 percent of the adult population. Conversely, individuals over age 54 made up a similar share of the population and held 71.6 percent of total wealth.

To make it sadder you can break down that younger set. Its more like 10% of those under 40 who have 2.5%, 40% who share 2.4% between them and the other half have enough to pay rent.

View on HN

Wouldn't we intuitively expect this to be true? Especially given that wealth accumulated over time and is usually measuring capital assets, which young people as a rule do not have yet.

As an example, let's say a person starts at age 20 now, adds $4k into an account every year. At the end of the year they get 4% interest on what's in the account. By the time they're 65, they should have about $507,482. Let's now assume that from 65 onward, a person depletes their savings by 4% every year. By age 85, they now have $224,408

If we now imagine a world where there is exactly one person for each year along this same path, we have a world where under 40 years old has a total combined wealth of ~$1,096,920. By comparison, over 54 (why skip the 14 years in between?) has ~$11,230,880. That puts under 40, at ~30% of the population at 7.12% of the total wealth, and over 54 at ~47% of the population at 72.97% of the total wealth.

That doesn't seem out of line with what we're seeing here, and if you bump that annual return to something like 7%, with the same 4% draw down, now you're looking at a split of 4.1% of the wealth vs 80.2%

And this doesn't account for other forms of wealth like property ownership or even business ownership. It's just a basic investment account.

'Let's now assume that from 65 onward, a person depletes their savings by 4% every year'.

But this shows that in fact, you do need other forms of wealth...at least to retire at 65.

Why?

Given the assumption that someone accumulates about 507k by 65, 4% of that is roughly 20k per year, which, without having other assets like a home, would prove to be very difficult to live anywhere in the US on.

If you're a couple that could mean two stream of social security income and if you've paid off the 30 year mortgage by the time youre 65, your major expense is gone.

So you're at $60k income and low housing costs. Doable for sure.

This is all true, but it's also not really germane to the point I was making. I didn't include anything to account for the fact that as people get older, they also tend to be able to save more towards their accumulated wealth, which would amplify the disparity between younger and older generations even more. As you note I ignored real-estate assets, which again you would expect older generations to own and own more of relative to their younger cohorts. One could also quibble about my decision to use 4% and 7% as the example ROI numbers.

But I would point out that given that I did ignore a number of factors that should skew the wealth distribution even more towards the older generations, one could argue the fact that the numbers played out as close as they did to just a basic simple 4% annual to retirement and 4% down in retirement calculation means that younger generations are actually doing better now than they should be doing. Of course we would need to look at where the wealth we expect the older generations to have has gone to say for certain but in either case, the original quoted numbers don't seem nearly as terrible as they appear at first read.

None of that is germane to the point though. The point was wealth is an asset that a person accumulates through their life and we should expect that younger people on the whole have less wealth than older people on the whole by the simple fact that they haven't had enough time to accumulate the same levels of wealth.

What we should be looking for is information about how each quantile in a given cohort is doing compared to their older counterparts at the same point in their lives. It's not enough to know that people under 40 own 10% of the wealth, you have to know how much of the wealth people under 40 owned in 2000, and 1980, and 1960, and 1940. And how that compares to their portion of the population. For example, we might expect to see a sort of "wealth bubble" around the baby boomer generation, which shows them having an outsized share of wealth at each stage relative to their older and younger cohorts. And we might expect that bubble to be correlated to the size of the baby boomer generation as a population.

For historic perspective:

https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...

Only seems to go back to 1989 though.

This graph is more informative than the article and effectively refuses its thesis. 40-55s are more threatened than under 40s.

It does seem like Gen X is going to get shafted a bit harder than others. Boomers are the richest cohort in history and their children are the Millennials; they may be on the poorer side now, but they do stand to inherit if end-of-life care doesn't soak it up first.

> To make it sadder

Isn't it entirely expected that younger people have less wealth in general than older people, who have had more years to accumulate wealth? Perhaps one could argue that 4.9% and 71.6% make too big of a gap, but then I also don't know what would be the "right" distribution, if there is even one. Given the effects of compound interest, it seems mathematically sensible that net worth will always be skewed more towards the elderly than one would intuit.

If you don't have cashflow, you can't get exposure to investments. Young people are disadvantaged if they can't get into investments materially and the greatest growth period was before they were in a position to get exposure (ie assets held by 55+ [1]). People can't even afford rent [2], let alone investment accumulation.

[1] https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/20... (2022 Bank of America Private Bank Study of Wealthy Americans: The impact of shifting generational attitudes amid an historic wealth transfer) [Only 27% of the ultra wealthy are self made; 70% of Americans who hold more than $3 million are over 56 years old.]

[2] https://news.ycombinator.com/item?id=39292941 ("HN: A record number of Americans can't afford rent")

> the greatest growth period was before they were in a position to get exposure

This is factually true now (that growth was higher in the olden days), but it doesn't have to be. In fact, if anything, it appears that a significant chunk of young people either want growth to plateau, or even reverse the course ("degrowth"), for various reasons. One can't have it both ways.

> HN: A record number of Americans can't afford rent

It's yet another symptom of the lack of growth, especially in the housing stock. Places that build adequate numbers of new housing don't show astronomical growth in rental prices.

It is expected nowadays. But the fact that younger cohorts cannot expect some sudden reararangement of wealth aka revolution, war, disease is pretty disturbing and unusual (for recent history).

> disease

Covid was a great chance, but of course the gerontocracy protected itself with public health policies that mainly harmed the young.

And the "smartest" people who usually yell about inequality enacted policies that made inequality, in practically every form, much worse.

> Its more like 10% of those under 40 who have 2.5%, 40% who share 2.4% between them and the other half have enough to pay rent.

Well I have read about Central Asia in Middle Ages. Wars and diseases have regularly cleared places at the top of the ladder for younger, ambibtious, nomad, immigrant folks. Not happening anymore in the West. Healthcare is too good for old folk...

Except people don’t live forever. Is this just an elongating of life and goals achieved younger are now achieved older, but everyone lives longer so as a percentage of life things haven’t changed?

For a huge portion of the population goals like raising a family and owning a home simply aren't going to happen at all instead they are going to spend 0-30 living in their parents home and 65-80 living in their kids home because they can no longer afford rent once they have to live on social security.

Given that education housing and health care have been increasing faster than wages this is presumably this portion is going to expand.

I would note this is called multigenerational living arrangements and is and has been the norm for almost all the world throughout history, sans a few decades in America.

The older I get the more I feel humans only know how to set up Ponzi schemes

Reply on news.ycombinator.com