baby boomer

What are baby boomers?

“Boomers” is the term used to describe people born between 1946 and 1964. Baby boomers make up a large portion of the world’s population, especially in developed countries. As of 2019, it accounted for 21.19% of the US population.

As the largest generational cohort in U.S. history (until millennials slightly surpassed them), baby boomers have — and will continue to — have a significant impact on the economy. As such, they are often the focus of marketing campaigns and business plans.

key takeaways

  • The “baby boomer generation” refers to one of the most populous generation born at the end of World War II and in the mid-1960s.
  • Because of their large numbers and the relative prosperity of the U.S. economy over the course of their careers, baby boomers are an economically influential generation.
  • Today, baby boomers are reaching retirement age and face some key challenges, including financing their retirement.
  • The term “baby boom” stems from the boom in births following the return of soldiers from World War II.

Understanding Baby Boomers

The baby boomer generation emerged after World War II, when birth rates soared around the world. The surge of newborn babies is known as the baby boom. During the boom, 76 million babies were born in the United States alone.

Most historians say the baby boomer phenomenon likely involved a combination of factors: people’s desire to build the families they put off during World War II and the Great Depression, and confidence that the coming era would be safe and prosperous. In fact, the late 1940s and 1950s generally saw rising wages, booming business, and an increase in the variety and quantity of consumer products.

Accompanying this new economic boom is the migration of young families from the cities to the suburbs. The GI Bill allows returning military members to buy affordable housing on the city fringe. This leads to the suburban ethos of the ideal home, with the husband as the provider and the wife as the housekeeper, plus their children.

As suburban households use new forms of credit to buy consumer goods such as cars, appliances and televisions, companies are also targeting these children, the growing baby boomer generation. As baby boomers approached adolescence, many were dissatisfied with this ethos and the consumer culture associated with it, fueling the youth counterculture movement of the 1960s.

That large group of kids grow up paying decades of Social Security taxes that fund the retirement of parents and grandparents. Now, millions of people are retiring every year.

As the longest-lived generation in history, baby boomers are at the forefront of the so-called longevity economy, whether they generate income in the workforce or, in turn, consume younger generations’ taxes in the form of Social Security checks.

By 2034, for the first time in U.S. history, the number of seniors is expected to outnumber those under the age of 18.

In a 2016 AARP study, baby boomers spend $7 trillion a year on goods and services. This figure is expected to increase to $13.5 trillion by 2032. Even as they age (as of 2021, the youngest baby boomers are in their 50s), they continue to hold corporate and economic power; 54% of personal net worth in the U.S. belongs to baby boomers.

Baby Boomers and Retirement: Why Boomers Retire Differently

The first generation of baby boomers was eligible to retire in 2012. Often referred to as a member of the Greatest Generation.

longer retirement

Many in previous generations worked as long as possible, and few were lucky enough to have a retirement that is considered golden by today’s standards. America’s post-World War II boom made life better for the greatest generation, who benefited from a workforce of six employees per retiree. Many in that generation were able to retire at 65.

One change between then and now is that a significant portion of the 76 million American baby boomers are expected to outlive their parents by 10 to 25 years. Those who retire in their 60s live at least 25 more years. So their retirement time will be longer.

higher expectations

With more health and energy — and their children are adults now — baby boomers who can afford it are looking to at least retire early to fulfill travel dreams and other wish list items. People who are now reaching retirement age are generally healthy enough to run marathons, build houses, and even start businesses.

Instead of moving to retirement communities, many move to smaller towns that offer employment and educational opportunities. Other baby boomers have opted to move to urban areas to take advantage of amenities such as public transportation and cultural attractions.

Some resource-scarce people are retiring outside the U.S. to countries with lower living costs such as Mexico, Portugal and the Philippines. 45% have no retirement savings, according to 2019 Baby Boomer Retirement Expectations Report Insured Retirement Institute.

More investment options, less investment security

The Greatest Generation had relatively few investment options: mostly ordinary bonds and certificates of deposit. But these are relatively safe forms of income. For baby boomers, that’s not the case. What’s more, as lifespans increase, there will be more opportunities and the need to take at least some investment risk to make sure you keep up with inflation.

Today’s baby boomers face an expanding field of income securities. The investment industry offers a lot of rope for investing and a lot of exciting new ways to lose it all.

Baby boomer parents might buy some dividend-paying stocks if they want to take the plunge. At the time, most industries that paid dividends, such as financials and utilities, were highly regulated. Decades of deregulation have made these industries more unpredictable and riskier. As a result, the previously assumed certainty of dividends or investment returns is now uncertain.

Interest rates rise instead of fall

In the 1980s, when the greatest generation started to retire, interest rates were about 18%. It’s good for savers (bad for homebuyers). Rates have been falling since then, and have risen in some periods, reaching a target of 0% to 0.25% by January 2021. Long-term declines in interest rates have provided huge returns for bond investors.

Baby boomers face the exact opposite. They face the possibility of steadily rising interest rates during retirement, rather than falling interest rates.

Personal savings instead of pensions

The Greatest Generation may have lower per capita incomes, but many of its members also have corporate or union pensions, which can be a substantial sum after a lifetime of working for the same employer, as was common in the past.

But the economy has changed, with many large companies merging or disappearing, and unions falling from 20.1% in 1983 to 10.3% in 2019, according to the Bureau of Labor Statistics.

What’s more, traditional corporate pensions are now largely obsolete, giving way to 401(k) plans, IRAs, and other investment vehicles that place responsibility on the individual. Because they are the first generation to experience these changes, most baby boomers don’t start saving enough or early enough.

The IRS allows increased contributions to retirement accounts for people age 50 and older, called “feedbacks.”

As for the federal pension known as Social Security, there are concerns that it may fall short. The problem is that baby boomers are much bigger than previous generations; the next generation, X, are much smaller. Even older millennials than baby boomers aren’t enough to offset the baby boomers’ increased longevity.

Unless the structure of Social Security changes, it is estimated that starting in 2034, there will not be enough tax-paying workers to support full Social Security payments to the retiree population. In the years when baby boomers began to enter the labor force, the ratio from workers to retirees ranged from about 5.1 to 3.3. As of 2013, this number fell to 2.8 and is expected to decrease.

Retirement fund shortage?

In addition to many not saving enough, baby boomers have been through the Great Recession at a critical time for retirement savings. Many baby boomers invested in expensive investments, mortgages, and startups in the late 1990s, only to find themselves struggling to make those payments a few years later; many found themselves completely gutted, or their mortgages flooded.

The 2008 subprime mortgage crisis in the mortgage industry and the subsequent stock market crash left many baby boomers scrambling to scrape together enough reserves. Many of them then turned to home equity borrowing as a solution. Even though real estate prices are rising again, some baby boomers are still unable to make a huge profit by selling their existing homes to find a cheaper one.

For those who are deeply indebted, saving has been put on the back burner. What’s more, baby boomers who responded to the Great Recession got a second hit by turning their remaining savings into an ultra-conservative: They missed out on the ensuing slack because they didn’t have enough stock portfolios. Huge bull market and risked stalling their clutches. At the same time, wages for many have not increased significantly.

How Baby Boomers Are Preparing for Retirement

Taking some of these steps can help baby boomers manage retirement.

Don’t retire (at least not too soon)

One idea is probably the most unconventional: don’t retire. Or at least, defer doing so until after the proverbial age of 65, 66 or 67 (depending on the date of birth). Whether that means working longer hours, consulting, or finding part-time work, being part of the workforce can help baby boomers financially and emotionally.

Baby boomers can also wait until age 70 to receive Social Security benefits if their financial situation allows. By deferring receiving benefits, they can receive 132% of their original monthly allowance. This, combined with increased income and savings from continuing to work, will reduce retirement stress.

Health Problems Program

Baby boomers, who grew up on a whim in the 1960s and 1970s, often projected an image that they would remain active forever. In fact, many people are in better physical condition than their predecessors of the same age. Still, the human body is not invulnerable. Obesity, diabetes, high blood pressure and high cholesterol are inevitably on the rise among baby boomers. Cancer and heart disease are the leading causes of death. Then there’s dementia: According to the Institute for Dementia Research and Prevention, it is estimated that women over the age of 55 and one in 10 men will develop dementia in their lifetime.

make a will

Less than 40 percent of adult Americans have a living will that details their medical wishes, such as whether they need life support if they are unable to express their wishes.58% of baby boomers have not drafted a will that dictates how assets should be distributed in the event of their own death, opening the door to a host of potential legal and financial problems.

The oldest baby boomers are still in their early 70s. If they are unable to make responsible decisions due to illness or incapacity, now is the time to make decisions about health care and who should be responsible for their lives and finances. Baby boomers shouldn’t leave these decisions to others; they should make them themselves.

It’s also wise to research long-term care insurance and other alternatives to paying for senior care. This is especially useful for younger baby boomers, for whom the price will be lower.

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