The baby boom generation consists of some 76 million people and is roughly defined as those born between 1946 and 1964. Baby boomers are nearing retirement as the oldest of this group is now 58 and the youngest 40.
Most of us in this group have vivid memories of being a boomer. It usually meant there was not enough space in the schools because the new classes were so big. Getting into college was harder because there were so many applicants. There were never enough pediatricians because there were so many babies. The housing market took off as boomers reached the age where they got married and started buying real estate. Fads that caught the attention of this massive population surge made millions for those creative enough to tap into the cultural interests of the surging mass of humanity.
And boomers have had an impact on the economy in other ways. With 76 million of us around, a large percentage of people putting money in retirement funds puts a lot of money into financial markets and can drive up stock prices. (Think of the stock market boom of the ’90’s.)
So what does the future hold?
In the short term, retirement areas are surging in popularity and in cost. Housing prices are skyrocketing in popular beach resorts and areas considered to be ideal retirement locations because of the weather, water or low taxes. Try buying property in places like Sedona, Arizona, Las Vegas, Nevada, or any beach resort in Florida and you will see the impact of this demographic bulge on the price of real estate as the boomers seek their piece of real estate in their retirement locale of choice.
Of course, some entrepreneurs are already creating large chains of funeral homes in anticipation of the coming need for mortuary services. But, in the more immediate future, will the retirement of baby boomers destroy your retirement investments?
What happens if this large group of people decides to withdraw billions of dollars from retirement stock accounts and put their money into different investments? And will boomers even be able to retire?
Some analysts warn investors about a “market meltdown” as boomers go from making lots of money in their chosen careers, and investing those retirement dollars in stock retirement funds, and begin withdrawing that money and living on interest income and Social Security benefits.
Ken Dychtwald is president of the San Francisco consulting firm Age Wave and has authored several books, including Age Power: How the 21st Century Will Be Ruled by the New Old.
Anyone who has seen Dychtwald speak remembers his presentations. He is dynamic, humorous and insightful.
Dychtwald spends a lot of his time thinking about retirement–at least about the retirement of other people if not his own.
Dychtwald’s ideas were also recently summarized in In the Vanguard, a newsletter for investors in the Vanguard group of mutual funds.
Dychtwald says there are three considerations anyone now planning for retirement must take into account: : longevity, lower birthrates, and the “age wave” of maturing baby boomers.
Americans are living longer. If you were born in 1900, you could expect to live to be 47. If you were born in 2000, you can expect to live to 77. And, as you mature, your life expectancy actually increases. A woman who is 65, for example, can expect to live to be about 90.
What makes a person old? Dychtwald shows a slide of an elderly man in a hospital bed with tubes and nurses surrounding his last days of life. That is obviously an old person. He also shows a slide of actor Paul Newman sitting on the front of his race car surrounded by female beauty contest winners.
Both individuals are the same age but at an age when most people think of dying, Paul Newman was racing stock cars and starting new business endeavors for charity and found himself surrounded by beautiful women. Most of us would prefer the latter option.
We are living longer and retiring later. Most of us don’t want to sit in a rocking chair waiting to die when we reach 65. While most people don’t fantasize about racing stock cars when we are 70, traveling or even working in a second career are not bad options.
Baby boomers have approached their life stages differently than previous generations and are likely to continue to do so. From the stereotypical atmosphere of free love and smoking pot and dodging the draft that characterized the 1960’s to the breakdown of dress codes and increasing divorce rates of the 1980’s and beyond, baby boomers have rejected the lifestyles and attitudes of previous generations.
In their later years, boomers are likely to continue working. Dychtwald predicts many of them will take up volunteer work and embark on a second career doing something they like doing (think of FedSmith.com as an example) outside of a traditional office atmosphere.
So what does this mean for the stock market (and your C fund investment in the TSP)? What does it mean for retirement planning?
Dychtwald doesn’t envision a market meltdown. This demographic group won’t leave the workplace all at once and won’t withdraw their money all at once.
But he does think some boomers are going to have a real problem. Some members of this generation are in good shape financially. They have a solid retirement plan (CSRS is one of the best and many federal employees in this age group retained their CSRS benefits instead of switching to FERS).
There are also some that are in trouble. They are going to live longer and it will cost them more to retire than they realize. Most of this group will work until they die. They are in debt; they haven’t saved for retirement and many have less than $1000 in assets. Planning for the future hasn’t been a factor in their careers and, as a result, they will not be able to retire unless they are on disability or a government welfare program. There are not many federal employees in this category but there clearly are some and they will not have much impact on the stock market because they probably never invested much anyway.
Finally, there is a large group that will do okay in retirement but not be able to retire as comfortably–or as soon–as they would like. They will live longer than they expected and will deplete their assets unless they save like crazy and cut back on expenses as much as possible. Some will delay retirement until their late 60’s or early 70’s to accumulate more retirement money.
Where do you fall? Most of us have a good idea of how we have done financially. Those under the FERS system have more potential problems meeting financial obligations(and more opportunity to increase their finanical health)–especially if they did not take the chance to invest in the TSP funds as early as possible.
The good news is that, according to one expert at least, the stock market is not likely to fall apart under the demographic pressure of the baby boom generation.
