The Checkout

Did Boomers Enjoy the Boom a Little Too Much?

Nancy Trejos

By 2010, households headed by people over the age of 50 will have control of more than half of U.S. spending.

So wouldn't it be nice to know that this generation, the Baby Boomers, has its financial act together?

A new study released today by McKinsey Global Institute, an economics research firm, has found that that is not necessarily the case.

In fact, more than two-thirds of early Baby Boomer households, meaning those between the ages of 50 and 63, are financially unprepared for retirement. There are a number of factors contributing to that, the study found. Among them: Inadequate saving, income and wealth inequality and a slowing economy.

Most of us have probably painted a rosy financial picture of Boomers. We think of them as the wealthiest generation. But it is only a top tier of Boomers that holds much of the generation's overall wealth. And while it is true that boomers make more money, they also tend to spend more. In 2005, Boomers had 47 percent of national disposable income but contributed only 7 percentage points to national savings, the study pointed out.

The fall in home values and stock prices is not helping matters. For the past few years, especially, Boomers have been relying on the wealth in their homes and on stocks and they haven't thought much about saving, said Diana Farrell, director of McKinsey Global Institute. "There was a sense of I don't need to save. I have assets," she said.

The study predicts that as the Boomers grow older and work less, they will also spend less, slowing down real GDP growth, from the 3.2 percent average annual rate we've seen since 1965 to 2.4 percent over the coming three decades. This could pose even more challenges for an already struggling economy.

So what can be done? According to the study's authors, one solution would be to let Boomers work longer. By increasing the median retirement age by about two years--from 62.6 today to 64.1 by 2015--the share of unprepared Boomer households could go from a whopping 62 percent to a still-not-so-great 31 percent.

But businesses and policymakers have to take some action to allow Boomers to work longer, Farrell said. For one thing, employers should let Boomers work part-time or from home. And the whole issue of health insurance for older workers has to be explored, she said, because insurance costs climb with age, discouraging many employers from keeping people past a certain age.

These conclusions come after a year-long study by McKinsey Global Institute in partnership with McKinsey's Consumer Insight Practice. Among the research techniques used was the creation of a database of U.S. household financial data by age, income, and wealth from 1962 through the third quarter of 2007 and a survey of more than 5,100 households containing Boomers and the Silents, which are the preceding generation.

By Nancy Trejos |  June 5, 2008; 12:09 PM ET Nancy Trejos
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I'm 41 and meeting a 59 year old woman deep in debt, cashed out her 401K at a huge penalty and hasn't started one at her new job, scared the bejeezus out of me enough to up my 401K contribution and begin deligently paying down my debt while adding to my savings. Seeing this woman every day at work and having to hear her whine about her financial situation and yet she still buys lunch almost every day (where we work you can't buy lunch for less than $7) got me off the pot, so to speak.

Posted by: Anonymous | June 5, 2008 4:12 PM

Some thoughts:

A. It is highly unsurprising that the value of houses has dropped; besides the recent bubble, the belief that housing prices would keep rising despite the aging of the baby boomers (and resultant likely downsizing, moves to retirement communities, etc) was, and still is, fundamentally irrational. Depending on the value of one's house to pay for one's retirement forgets the number of other people doing the same thing.

B. Baby boomers appear to be expecting younger taxpayers (e.g., myself) to pay for their retirements, with Social Security and Medicare (I note the latter as making it questionable exactly why employers would have a problem with retaining older workers due to health insurance costs). That they may have the votes and other means of political pull to indeed exact higher taxes instead of saving more themselves is an excellent argument against majoritarian rule in regard to economics (a version of "bread and circuses").

Posted by: Allen Smith | June 5, 2008 9:31 PM

I agree with Allen Smith--to all appearances the baby boom generation has bankrupted the federal government and many state and local governments, too; this is on top of a significant number of that generation headed toward personal destitution in old age. The founding fathers worried that democracy would fail because the public would vote themselves free money...but it has taken over 200 years for it to happen...probably not a flaw of democracy so much as a flaw in the soft version of socialism adopted by the Democratic party in the middle of the 20th century.

Posted by: GL | June 6, 2008 9:30 AM

There are many things that could be done to fix this problem, but arguably a few of the least painful would be to 1) Start educating the public that Social Security is not a retirement plan, its intended as a supplement to your retirement savings. 2) Eliminate early retirement entirely and 3) Raise the retirement age to 70 or 72. The increase in retirement age could be phased in over several years. 4) Encourage people to continue to work part time after retirement using tax incentives. 5) Invoke additional tax penalties for those who do not save for retirement. The required savings could be scaled to income, with those under the poverty level getting tax breaks for retirement savings so that the net effect would be that their tax savings would more than offset the amount they put into their retirement savings.

Just a few thoughts.

Posted by: Rene | June 7, 2008 3:05 PM

Let's challenge the conventional wisdom about Baby Boomers, Social Security, and retirement.

1) Claim: Baby boomers will be impoverished in retirement.

Actuality: Given good health Baby Boomers will work into their 60's and 70's. For those that did not save, there will be no retirement.

2) Claim: Boomers overspent and did not save for retirement.

They decided to spend now and not save for later. Doing things when you are young and healthy versus having a large pot of money when you are old.

My wife and I both had parents that died before turning 60. Food for though if everybody is saving for retirement.

3) Claim: Social security entitlements will destroy the country.

Actuality: Any predictions thirty years into the future are fiscal voodoo. We have decided to engage in massive deficit spending and a war in Iraq. These and others are all fin0ancial priorities that we be juggling.

4) Claim: Social security is a Democratic entitlement.

Actuality: Social Security certainly started under a Democrat: FDR. The largest single tax increase for Social Security was done under Republicans: Ronald Reagan and Alan Greenspan.

Posted by: Tam | June 8, 2008 1:47 PM

I would add that a significant part of the crunch is also the sellout by corporate controlled government. While I would grant that Detroit paying 85k a year to someone screwing on lugnuts was excessive, the end of defined benefit pensions, irrational exuberance in stocks and housing, and the lack of wage growth coupled with obscene executive payouts has fueled globalism and the demise of the middle class. Both parties are equally guilty. The corporate financial system encourages sloth and spending at every turn, to the point at which, for social and environmental reasons, something drastic must be done. I don't think bailouts (a la subprime) are the answer at all, but the huge increase in economic inequality is outrageous. And, no, I am set. Save, buy used, plan. I finally wised up. So, I'm not arguing that you all don't have valid points as well.

Posted by: Ben Scrimpin | June 9, 2008 8:28 PM

I am what your article refers to as a silent , prior boomer generation. Some points are so basic.My generation absoulty admired, the greatest generation. Their experience with the depression and WW2, passed on values to my generation. The Boomers by shear numbers, overwhelmed society, and felt everything had to change , be rebelled against. Look what we got, a non caring society, and lots of dis honest, selfish business people. Not sure they are a generation that will get much admiration, what have they done?

Posted by: Dan Green | June 10, 2008 1:26 PM

Don't lump all boomers together. My wife and I are boomers and we have not bought a new car since 1990 (we always buy used), have always maxed out the IRA/401(k), sent our kids to public schools and in state colleges (and took full advantage of Va's prepaid plans), and live well within our means (no $1,000 birthdays or vacation house, never used home equity loans). Now, as we near retirement we have ample (over $7M) in funds invested for retirement)and a house that is free and clear we can sell and move to a cheaper area if we desire), even though our salaries over our work life probably just average out to the Fairfax median. Those who did not exercise prudence do not deserve a taxpayer bailout, they get to work through their 70's, while those of us who were prudent get to enjoy retirement. I beleive there are as many boomers in the second group as in the first. Those who splurged and bought the 30K BMW in their late 20's now get to work and extra few years, if they had invested that 30K instead, at an 10% average return, it would be worth an extra $1.2 million in their late 60's - i.e. an extra 5-8 years of retirement! Hope to see you while we cruise the Bay!

Posted by: VirginiaResident2007 | June 11, 2008 4:20 PM

I think that boomers are a large and varied group. Some are caring; some aren't. I don't think you can lump them together and blame them for the world's ills.

I write a boomer consumer blog called The Survive and Thrive Boomer Guide at


P.S. A lot of people are calling the generation before boomers the mature generation rather than the silent generation.

Posted by: Rita | June 11, 2008 10:41 PM

Actually, what I find amazing is the number of boomer parents who, at the age of 50 - 63, are still paying for their kids' decisions. More than 1/4 of all college grads return back to their parents' homes to tide themselves over until they get that "perfect" job. And, by perfect, that implies a 60K salary, 3 months paid vacations, Wasted Wednesdays and Thirsty Thursdays off and all the free benefits they can get their hands on. And, unbelievably, the parents acquiesce. And they also pay the bills as well as Junior's student loans that he racked up (beer pong is not a cheap sport).

So, now we get this perfect storm. Parents who refuse to take responsibility for their own financial situation enabling children who do the same. And we wonder why our national savings rate is negative . . . humm.

Posted by: cguy04 | June 16, 2008 2:32 AM

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