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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 a

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.

11101010001100 3y ago
'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.
- dandy23 3y ago
  Why?
  - least 3y ago
    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.
    - missedthecue 3y ago
      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.
    - tpmoney 3y ago
      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.
- tpmoney 3y ago
  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.

11101010001100 3y ago

'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.

dandy23 3y ago
Why?
- least 3y ago
  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.
  - missedthecue 3y ago
    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.
  - tpmoney 3y ago
    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.
tpmoney 3y ago
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.