As Boomers Slow Down, Will The Economy Follow?

By Sarah Chandler AAA

Music icons Patti Smith, Greg Allman, Carlos Santana and Steven Tyler all share one thing in common — and it’s not just rock and roll. They’re Baby Boomers, the longest-living generation in the history of this country.

According to records from the U.S. Census Bureau, baby boomers — more or less born in the two decades following the end of World War II, or between 1946 and 1964 — number 65.2 million. That’s not counting the roughly 11 million of this mythic generation who died by 2012. 2031 marks the year that the youngest boomers, or those born in 1964, will turn 67, making them eligible to receive Social Security benefits.

In addition to concerns about the general aging of the U.S. population — those over 65 are projected to make up 20% of the U.S. population by 2029 — economists have expressed concern about trickle-down economic effects as boomers move from retirement into old age. (For related reading, see: Top 10 Investments For Baby Boomers.)

Unbelievably Good Fortune...

While Steve Jobs remains one of the most lauded poster children for his generation's creativity and innovation, he’s in good company: boomers have proved to be an astoundingly productive cohort. Part their success comes down to luck: economically speaking, they were born at the right time. After enjoying childhoods during the high growth, economically stable decades following World War II, they rode the crest of relative prosperity into middle age with a just a handful of economic blips, like the 1979 energy crisis and the early 1980s recession. Consider the height of the Clinton era: during the 1990s, labor force participation unsurprisingly soared to an all-time high led by the Boomer generation. That kid who worked two paper routes in 1965 would have been well-positioned to cash in on the dot-com boom of the 1990s at the peak of his or her earning years.

Yet what will happen as more than 250,000 Americans celebrate their 65th birthdays each month? As these boomers head towards retirement, impacts to the labor force and to consumer spending are already showing profound effects. (For related reading, see: How Baby Boomers Will Change The Way Others Retire.)

...But Not Unscathed

The devastating Great Recession that struck in 2008 has been widely blamed for the current workforce participation rate, which stood at a 36-year low in April. Yet another cause of lower labor numbers can be chalked up to boomers who, though many were forced to work extra years to compensate for retirement investments lost in the 2008-2009 market crash, are now retiring in significant numbers.

As boomers retire, expect wide-ranging effects: not only do retirees produce and contribute less in an economic sense, they tend to spend less as well — not a reciepe for economic growth.

One arena where this generation is spending more? On their adult children. According to the National Center for Policy Analysis, of parents of children aged 18-39, 59% are providing some kind of financial support to children who are no longer in school, with student loan assistance a significant area of financial burden. Mortgage debt is another culprit. Yet when kids and mortgages are taken out of the picture, general consumer spending among this age group has decreased dramatically since 1990. 

That may come as a surprise: while the original “Me Generation” did contribute to the excessive financial risks that led to the 2005 housing bubble and subprime mortgage crisis, this demographic has actually shown widespread declines in consumer spending habits over the past two decades. The most marked decreases lie in areas such as food, clothing, and household furnishings. Among those aged 55 to 64, food expenditures fell 20%, while clothing purchases dropped a whopping 70%. (For related reading, see: Who's To Blame For The Subprime Crisis?)

Post-Boomer Bust?

Between bleak economic predictions, widespread post-recession losses of retirement savings, and the subprime mortgage debacle, no wonder some members of this generation are reluctant to retire. Even now, the generation who coined the phrase “live to work” is living up to its reputation: according to the Bureau of Labor Statistics, nearly 20% of Americans age 65 and older remain active in the workforce.

This workplace longevity may prove a problem for younger workers who have struggled to find well-paid, stable work during high unemployment levels of the past years. The upside? Retirement for this cohort is as inevitable as the boomerang effect that will eventually create job availability. The Bureau of Labor Statistics projects that by 2018, there will be 10% more job openings in all occupations than existed in 2008.

Ultimately, some boomers take the live-to-work ethos to an extreme. A 2013 Gallup Pool, which investigated the consumer and workplace behaviors of baby boomers, posed this question: “At what age do you plan to retire?”

For 10% of respondents, the answer was succinct: “Never.” (For related reading, see: How Retirement Attitudes of Baby Boomers and Gen-Xers Differ.)

The Bottom Line:

While baby boomers are working longer, their inevitable retirement will have widespread effects on the American economy. Expect high impacts on consumer spending, as retirees not only produce less, but also consume and spend less. While workforce participation already sits at historically low levels, the mass retirements of boomers could have a positive boomerang effect — essentially freeing up jobs for younger employees who struggled to find work in the lean years of the Great Recession. (For related reading, see: Why This Investment Will Remain A Boomer's Best Friend.)

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