Boomers Are Losers

The shift from defined-benefit pension plans to defined-contribution retirement accounts over the past few decades has stripped tens of thousands of dollars in pension wealth from baby-boom workers. An article in the March 2006 Monthly Labor Review reveals just how much boomers will lose.

In the article, James H. Moore, Jr., an economist in the Department of Labor, projects how many baby boomers will be covered by pensions and how much pension income they will receive at age 62. The purpose of the article is to explore differences in pension benefits among boomers by demographic characteristic. But reading between the lines, it becomes apparent that the shift over the past two decades from defined-benefit plans (in which employees receive a guaranteed monthly benefit for life) to defined-contribution accounts (in which employees contribute to their own individual account, receiving a lump sum at retirement) will leave boomers with less in retirement.

Among older boomers (born between 1946 and 1950), 31 percent will be covered by a defined-benefit pension plan at age 62, according to the Moore's projections. They will be the lucky ones, receiving an average of $816 per month for life. Twenty-eight percent of the oldest boomers will be covered by a defined-contribution pension plan. Projections show they will have saved an average of $122,753 by age 62. At a 5 percent withdrawal rate, which is often recommended by financial planners, that lump sum will generate only $511 in monthly income. Bottom line: the pension wealth of older boomers with a defined-contribution plan will be 37 percent less than their peers with a defined-benefit plan.

Among younger boomers (born between 1956 and 1960), 29 percent will be covered by a defined-benefit pension plan at age 62. They will receive an average of $732 in monthly pension income for the rest of their lives. A larger 37 percent of younger boomers will have a defined-contribution retirement plan, having saved an average of $131,198 by age 62. That sum will generate only $547 in monthly income for them, or 25 percent less pension wealth than their counterparts with a defined-benefit plan.

The loss of pension wealth will be even greater for less educated boomers, minorities, and women.