Boomer Effect (Baby Boomer Factor)

What Is the Boomer Effect (Baby Boomer Factor)?

The boomer effect refers to the influence that the generation born between 1946 and 1964 has on the economy and most markets. The term is used to describe everything related to baby boomers including their consumer habits, social media preferences, how marketers target the boomer generation, and how the financial services sector can best serve boomers as their priorities shift in later life. The boomer effect is sometimes called the boomer factor or the boomer shift.

Understanding the Boomer Effect (Baby Boomer Factor)

Following World War II, in 1946, more babies were born than ever before: 3.4 million, which is 20% more than in 1945. This marked the beginning of the so-called “baby boom.” An additional 3.8 million babies were born in 1947, a further 3.9 million were born in 1952 and more than 4 million were born every year from 1954 until 1964. At this point, baby boomers represented 40% of the nation's population.

Today, baby boomers hold a large amount of the wealth in North America, making them a prime market segment. As they have aged, baby boomers have shaped the focus of companies. Examples are the wide range of anti-aging products that target the generation, real estate aimed at people who seek to live longer independently, investment in healthcare, and advanced medical technology. Baby boomers are living longer than any generation before them.

Baby boomers are also affecting labor markets. Prior to the pandemic they were remaining in the workforce for longer and holding onto jobs that would otherwise be filled by the next generation. This had a positive impact on businesses because studies have shown a drop in productivity when boomers retire due to the loss of organizational intelligence.

The pandemic has pushed millions of baby boomers to retire sooner than they planned, according to research from the Federal Reserve Bank of St. Louis. This has contributed to the labor shortage in the U.S.

Per The 2022 Investopedia Financial Literacy Survey, the majority of baby boomers are confident about their ability to retire. Sixty-two percent of surveyed baby boomers are retired, 23% expect to retire, and 16% are uncertain if they will ever be able to quit working. Seventy percent of still-working baby boomers plan to support themselves with Social Security when they retire, while more than one-fourth of those surveyed expect to receive retirement income from pensions and 401(k)s.

Investing in the Boomer Effect

The baby boomers collectively have created trends that disproportionately benefit particular industries. Investors can position a portfolio to take advantage of the boomer effect. Most of these investment opportunities are in the medical or medical services sector. For example, orthopedic manufacturers, affordable care homes, medical device makers, and pharmaceutical manufacturers will continue to show growth as more boomers age.