Much has been made of the potential impact of the baby boom generation in retirement. There have been numerous themes and schemes related to this demographic phenomenon. Some soothsayers in the investment world see the boomers selling riskier assets such as stocks and buying traditionally less volatile investments such as bonds. Others have speculated about the inheritances that will pass on to boomers, who tend to be more free-wheeling in their spending habits than their more frugal parents, who themselves are sometimes dubbed “Depression Babies”. While we don’t know exactly how the baby boom phenomenon will play out in terms of macroeconomic impact or even the microeconomics of the retirement and/or senior living industries, we can be confident that Baby Boomers will be a big factor for the next 20-30 years.
An interesting yet disturbing article in the NY Times a few weeks back warns that many of the boomers have not adequately prepared for retirement. The article, “Our Ridiculous Approach to Retirement“, suggests that at some point almost half of middle class Americans will be categorized as “poor”, due to the low level of retirement savings currently accumulated. The author contends that the switch from defined benefit retirement plans to defined contribution plans has failed the American middle class because “it expects individuals without investment expertise to reap the same results as professional investors and money managers.”
Another NY Times article, “Spain’s Jobless Rely on Family, a Frail Crutch“, profiles an extended family in Spain struggling to deal with unemployed adult children and their families, who now rely upon their parent’s pension and savings for their basic needs. Some are even removing parents from nursing homes. While unemployment in Spain is considerably higher than in the US (roughly 25% vs. 8.3% or 15% US underemployment), this apparent trend of extending families is both heart-warming and scary.
Demographics can be a big deal. Will Boomers sell stocks and buy bonds? Some would argue this is already happening. The NY Times article suggests there aren’t many stocks to sell. As for inheriting, some Boomers may need to “borrow” against that to sustain the lifestyle they have become accustomed to.
In any event, a better economy would go a long way towards reversing some of these disturbing trends. More than ever, we need some big thinking to solve the overlying problems of excess debt and sluggish growth. Will someone please tell that to the 2 guys running for President of the United States?