What Is a Baby Boomer?
Baby boomer is a term used to describe a person who was born between 1946 and 1964. The baby boomer generation makes up a substantial portion of the world's population, especially in developed nations. It represents nearly 20% of the American public.
As the largest generational group in U.S. history (until the millennial generation slightly surpassed them), baby boomers have had and continue to have a significant impact on the economy. As a result, they are often the focus of marketing campaigns and business plans.
- Baby boomer refers to a member of the demographically large generation born between WWII and the mid-1960's.
- Because of their numbers and the relative prosperity of the US economy during their careers, the baby boomers are an economically influential generation.
- Today, baby boomers are reaching retirement age and face some unique challenges, including funding their retirements.
Understanding Baby Boomers
Baby boomers emerged after the end of World War II, when birth rates across the world spiked. The explosion of new infants became known as the baby boom. During the boom, almost 77 million babies were born in the United States alone, comprising nearly 40% of the American population.
History of the Baby Boomers
Most historians say the baby boomer phenomenon most likely involved a combination of factors: people wanting to start the families that they put off during World War II and the Great Depression, and a sense of confidence that the coming era would be safe and prosperous. Indeed, the late 1940s and 1950s generally saw increases in wages, thriving businesses, and an increase in the variety and quantity of products for consumers.
Accompanying this new economic prosperity was a migration of young families from the cities to the suburbs. The G.I. Bill allowed returning military personnel to buy affordable homes in tracts around the edges of cities. This led to a suburban ethos of the ideal family comprised of the husband as provider and the wife as a stay-at-home housekeeper. As suburban families began to use new forms of credit to purchase consumer goods such as cars, appliances and television sets, businesses also targeted their children, the growing boomers, with marketing efforts. As the boomers approached adolescence, many of them became dissatisfied with this ethos and the consumer culture associated with it, which fueled the youth counterculture movement of the 1960s.
Portrait of a Generation
As the longest-living generation in history, boomers today are at the forefront of what’s been called a “longevity economy,” whether they are generating income in the workforce or consuming the produce of younger generations in the form of their Social Security checks. According to a recent AARP bulletin, baby boomers spend $7 trillion per year on goods and services. And even though they are aging (the very youngest boomers are in their late 50's as of 2019) they continue to hold corporate and economic power – 80% of the country’s personal net worth belongs to boomers.
Baby boomers don't necessarily make forward-thinking decisions about their inevitable and approaching deaths. According to the Pew Research Center, about 70% of Americans do not have a living will, which details their medical wishes, such as whether to be put on life support should they become unable to articulate their wishes. Over 30% of those over age 65 have not drawn up wills that stipulate how their assets should be distributed in the event of their own deaths, leaving the door open for a host of potential legal and financial problems.
Closely related: the impact of aging baby boomers on health care systems. Boomers, who came of age during the freewheeling 1960s and 1970s, often project an image that they will stay active forever – and indeed, many are in better shape than their forebears at the same age. Still, the human body isn't invulnerable. Obesity, diabetes, hypertension, and high cholesterol are all on the rise in the boomer population. Cancer and heart disease are the leading cause of death. And then there are the concerns beyond physical health: According to the Institute for Dementia Research & Prevention, it is estimated that 1 in 6 women, and 1 in 10 men who live past the age of 55 will develop dementia in their lifetime. So, it's anticipated that there will be more demands for government and health-related services.
Baby Boomers and Retirement: Why the Boomers' Retirement Is Different
The first of the baby boom generation became eligible to retire in 2012. In many ways, the way they spend their post-work years will be different from that of their parents, or members of what's often called the greatest generation.
Much Longer Retirement
Many people in previous generations worked as long as they could and few were fortunate enough to have a retirement that would be considered golden by today's standards. America's post-World War II prosperity made things better for the greatest generation, and there were plenty of people who were able to retire at the official age of 65 – and expected to die about five to seven years after that (based on life expectancy tables at the time). In contrast, a large percentage of the 77 million American baby boomers are expected to live 10 to 25 years longer than their parents did; those retiring in their 60s can expect to live about 25 years more, at least. So their retirement period will be longer.
Boomers demand a much costlier retirement than their parents ever would have expected. Not considering military stints in Europe or the Pacific, how much traveling did past generations of retirees do? Boomers' parents were Depression-era babies who practiced frugality and continued to pinch pennies throughout retirement. In stark contrast, boomers want their retirement to include the lush life, travel, relocation, new experiences, and other trappings of the high-consumption life that they're used to. Those who reach retirement age now are often healthy enough to run marathons, build houses, and start businesses. Many of them are migrating to small towns that can offer things not commonly found in retirement communities, such as employment and education opportunities. Other boomers are choosing to move into urban areas to take advantage of amenities such as public transportation and cultural attractions. All this is expensive.
Exotic Investment Options
The greatest generation had relatively few investment options: mostly ordinary bonds and certificates of deposit. Today's boomers, on the other hand, are faced with an ever-expanding universe of income securities. The investment industry has provided a lot of rope to invest, and a lot of new and exciting ways to lose it all.
If they felt like taking a risk, the boomers' parents might have bought some dividend-paying stocks. At the time, most of the dividend-paying industries, such as finance and utilities, were highly regulated. Decades of deregulation have caused these industries to become less predictable and more risky; hence, the certainty of previously assumed dividends or return on investments is now uncertain.
Rising, Instead of Declining, Interest Rates
In the 1980s, when the greatest generation started to retire, interest rates were about 18%. In 2010, rates were about as low as they get, at less than 1%. This long decline in interest rates provided a great return to bond investors. The boomers are facing the very opposite situation. Instead of an ever-declining interest rate, they are facing the likelihood of steadily increasing interest rates during their retirement.
Personal Savings Instead of Pensions
The greatest generation might have had a lower per capita income, but many of its members also had corporate or union pensions – which could be considerable, after working for a lifetime for the same employer, as was once common. But boomers wanted higher salaries, freedom to change jobs, and the ability to save independently. Besides, traditional corporate pensions have been largely phased out now, giving way to 401(k) plans, IRAs, and other investment vehicles which put the onus on saving on the individual. And, when given the option, most boomers didn't start saving enough or early enough. As for that federal pension known as Social Security – there is concern that it could fall short badly. The problem is that the baby boomer generation is much larger than most of the generations that followed and will be paying the boomers Social Security benefits. This potentially means that there will not be enough taxpaying workers to support the Social Security payments to the aging boomer population.
During the years baby boomers were in the workforce, there were six employees for every one retiree. But it is estimated that by the time the entire baby boomer generation reaches retirement age, that ratio will fall to three-to-one.
A Retirement Fund Shortage?
This is where the Great Recession has been a big problem for boomer retirement savings. Many boomers jumped into 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 tapped out or their mortgages underwater. The subprime meltdown of 2008 in the mortgage industry and the following stock market crash left many boomers scrambling to piece together an adequate nest egg. Many of them subsequently turned to borrowing against the equity in their homes as a solution. While real estate prices are starting to rise again, some boomers still can't profit substantially from selling their current home in order to find a cheaper one.
With the large debt built up by generation, savings have been put on the back burner. And even when they have put money by, boomers have been too conservative with their investments. By not holding enough of their portfolios in stocks, they’ve risked letting their nest eggs stagnate.
Even though it’s important for older generations to be careful with their finances, not being aggressive enough while investing in younger days can make it hard to retire on time. They’ve been working within a healthy economy for the majority of their careers, and many assumed they’d be able to ramp up their savings in the decade or two before retirement. With the economy still sluggish, however, their income has been funneled to more immediate expenses.
How Boomers Can Prep for Retirement
There are some nontraditional plans baby boomers have for retirement. One idea might be the most non-traditional of all: don't retire. Or at least, delay doing so beyond the proverbial age 65 or 66 (depending on birth date). Whether that means working longer, consulting, or finding a part-time gig, being part of the workforce can help boomers financially and emotionally. Finances permitting, boomers could also wait to take their Social Security benefits until they reach 70. By postponing benefits, they can receive 132% of their original monthly stipend.