Will Boomers Bust in Retirement?

Baby boomers may be facing a difficult scenario in retirement.

Are you a "baby boomer?" If you were born between 1946 and 1964, you fall into the demographic classification of a "baby boomer." You probably listened to the Beach Boys, recall seeing Elvis (at least on TV), your schools were always overcrowded because there were too many kids for the classrooms available, and you were a member of the first generation to use "the pill."

If you went to college, your college campus probably was the place for demonstrations against the Vietnam war and, if you are male, there is a good chance you can still recall your number from the draft lottery.

Through sheer numbers, we have changed America. There are millions of us. If a company has a product that boomers want, they have hit the jackpot because millions of that product will be sold.

We are sometimes known as being selfish or at least self-centered; sometimes idealistic (or perhaps just unrealistic); focused too much on sex, drugs and rock-and-roll, and more concerned with living for today instead of saving for tomorrow.

Here’s the rub. Tomorrow is almost here. For some of us, "tomorrow" is here now. And, for most members of the boomer generation, college may have been a lot more fun than retirement.

According to the Wall Street Journal, it’s about to get ugly for boomers. Here’s why.

Large numbers of boomers are still kicking around. Older boomers are now getting ready to retire–or at least they want to. But many of us will not be able to enjoy our "golden years" unless you consider being the greeter at your local Wal-Mart store as part of your retirement dream.

Boomers born between 1946 and 1955 have a median net worth of $146,000. That includes their home equity. Most Federal employees are much better off than average.

Most Feds in this age group are in the Civil Service Retirement System (CSRS) so, even if you have spent everything you earned throughout your career, you will have a reliable annuity so you can at least buy or rent a trailer in a park in South Florida. And, if you live in the DC metropolitan area and bought a house back in the 1970’s, your net worth is probably far above the national average. That will enable you to sell your house, move to a cheaper area, and enjoy your retirement.

But a lot of people in this age group can’t do that. People retiring today can expect to live longer and medical costs are going higher fast. And remember how crowded grade school was because of all those kids being born at the same time? The nursing homes will also be full for the same reason and politicians may not be anxious to go out and build a lot of new ones to accommodate the old folks that won’t live much longer.

Most boomers will have to work longer. They won’t be able to retire when they are 65.

Because of the number of boomers, a smaller percentage of the population will be working and paying social security taxes. Many economists expect Congress will decrease Social Security payments or, at a minimum, extend the age at which a person can begin collecting Social Security because there won’t be enough money there to support so many retirees.

A number of boomers are undoubtedly planning on living large on their nest egg–assuming your net worth is way above the $146,000 average. But interest rates have been dropping. Since 1981, the yield on a 10-year Treasury note has gone from 16% to about 4%. An interest rate at this level will not give most of us a lot of extra cash to spend. A retiree can’t plan on getting double-digit gains to live on. That means that most of us will have to have a good nest egg to live on before we retire; keep on working later than we might like to; and live in less luxury than we may have planned.

According to the Journal, the richest 20% of boomer families have a net worth of $766,000. The next tier has a net worth of $245,100 and the average (or the middle 20%) have a net worth of only $107,150.

Most Fedsmith readers can probably feel better about their situation when looking at these statistics because most Federal employees make considerably more than the average American and have a much better retirement plan to fall back on.

If you fall into this lucky and happy group of people, enjoy your retirement. But if you switched to FERS, borrowed against your TSP account and are planning on living on Social Security and your future gains in the stock market, your retirement may not be everything you thought it could be. If that is your situation, put as much money into the TSP as you can and plan on working a few years longer.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47