Economics of retiring baby boomers

Factual Questions
41

Well, you made to investments that didn’t pay off.

You apparently went to a sufficiently expensive college that has take 13 plus years to pay off.

And you purchased a home that hasn’t paid off either.

You then had kids that you couldn’t afford.

And you want to send them to sufficiently expensive colleges that will take years and years to pay off.

You’ve made some poor investments (expensive college vice cheaper small state schools and a house that didn’t pay off either) combined with other poor fiscal choices.

42

I think a lot of our issues as a country is that the politicians have trained us all how to think about Social Security and other such programs. The republicans have been trying to kill Social Security since it was enacted. Almost everything you know about the program is a republican talking point.
One thing we could do to strengthen Social Security and the country in general would be to dramatically lower the retirement age. Good luck with that happening with a Republican legislature though.
Cite
Cite

43

You forgot the cite for this gem.

44

Not that it’s stupid to pay off your mortgage early, but the personal rate of return on my 401k account from the inception date of 5/13/2003 is 10.24%. My fixed mortgage rate is 2.875%, and I have enough money in the 401k to pay off the mortgage almost 6 times. I’m completely unconcerned about retiring with a mortgage, it’s just another expense that I’ll have to budget for, like the cable bill. Retiring with a mortgage doesn’t make you an irresponsible idiot, sometimes it’s good fiscal sense.

45

No, I said you convince your kids to go to a local state school because it’s cheaper, but it still costs almost $9,000 per year ($36,000 for four years) for each kid* just for tuition. *
Just to clarify, that story I told is fiction, not based on a specific person but more like an amalgam of different people I know. The overall point I wanted to make is that there are a LOT of self-employed people in this country, and most of the ones I know are struggling. That’s the factual part, since this is GQ after all. I apologize for straying a little off topic into emotions.

46

My concern is that I was born at the end of the baby boom and when I retire I’ll be like one of the last locusts to hit the field. I’m not counting on an economy that will help me out in retirement, and I intend to keep on working as long as I can (although I don’t know how long that will be due to health issues). It’s affecting everyone though, I have to send my mother money monthly, she did try to plan well for retirement but inflation is high and now at age 85 she’s lived longer than she expected.

47

Some Boomers saved and invested wisely their entire lives while others lived their life in style from paycheck to paycheck. As long as you make enough money you can live well and not worry about the future… until the future eventually comes. Perhaps they thought they would die before they would have to retire, but things don’t always work out that way.

IMO it would be smarter to plan for a worse case scenario (live 20 years longer than you expect) versus a best case scenario (die shortly after your retire) so they are covered in case things don’t go as planned, but not everyone thinks that way and that’s okay as along as they understand the consequences. To expect the government to somehow provide you with a comfortable retirement even though you didn’t bother or weren’t able to save for it seems crazy. And yes, serious medical issues can easily wipe out whatever savings you have, unless you have insurance that covers you.

Some people spend all their money and die long before they reach retirement, and that’s one way to ‘beat the system’… but you may be unlucky enough to live to 100. If you never bothered to plan for that possible outcome you shouldn’t complain later about about having to live at poverty line.

As far as those boomers who never had a chance to earn a good living and save for their retirement, I truly feel sorry for them since they really didn’t have a choice in the matter.

48

One company I worked for offered a savings plan, whatever I put in they matched 50% up to 6% of my income. I found a simple principle - whatever disappeared off my income before I got paid, I didn’t miss. They eventually allowed an additional 9% unmatched. I was putting in several hundred dollars a paycheque and simply did not miss what I never had. It sure made a tidy nest egg when I did leave.

I think sbunny8’s example is a little extreme, but there are plenty of people whose life experience means they had little chance to save or had an event like prolonged layoff that destroyed any savings they had. Plus, too much of our modern lifestyle requires that leap of faith to buy things on credit. It’s not necessary to buy a new car every few years, or trade up to a bigger house the moment you can afford the payments- but a car is a necessity except in Manhattan, and a house in most situations makes more sense than an apartment.

Canada is distinct from the USA in not offering a tax credit for mortgage interest. The result is that Canadians are heavily motivated to pay off their house rather than re-mortgage to the hilt every few years (or as the say goes, treat the house as an ATM) This allowed Canada to weather the 2008 storm just fine.

As I said, category I is the people who have saved, and over the next three decades will be cashing in those savings.
Category II boomers are the ones with little to no savings, who will be a burden on the workers and savings-cashing taxpayers in increasing numbers.

the problem - maybe it’s my perception, not sure how to validate it - is that I don’t believe there is the millennial rich middle class in sufficient numbers saving for their retirement to make up for the assets being liquidated by the boomers, and they too will have to pay for the Category II boomers. Most likely these will be extra taxes also eroding their savings capability.

49

History

Through 2012

Just the tip of the iceberg.

Sorry for not citing. I claim common knowledge.

50

Meaning no disrespect the posters below, I must disagree.

I most certainly can, and do. They’ve collectively had a pretty good run for 4 decades, and squandered it like drunken sailors on shore leave.

I can’t imagine anyone really thought this. The writing was on the wall even when I was in high school. Cushy secure factory jobs were disappearing like smoke. I watched many of my friends’ dads get laid off and it was obvious even to a teenager the rules were changing.

Sorry, but it became obvious to both of us by the late 70’s that the workforce was separating into “the quick and the dead” (so to speak). You could either be adaptable and mobile, or you could sit and wait for the inevitable pink slip. I’ve held 23 different jobs since high school, with 5 major career changes (Truck driver, Pilot, EMT/Ambulance, Offshore Oil-rig worker, Engineer). Counting only state or national borders, we’ve moved 12 times since getting married. (Miizpullin’s total is slightly smaller, but she spent time out of the workforce as SAHM). For many of our early years, I was in a different time zone and often halfway around the world pulling down a paycheck and sending it home. For the first several years, she sublet one room of our small apartment to a college student and managed to bank a little over 70% of our takehome pay. We knew we needed the money to pay our way thru school… and we both graduated debt-free.

You’ll have to forgive my sympathy meter for the majority of boomers now. It has been, and will remain stuck on zero.

[Bolding mine] Because they’re showing up on my doorstep (literally and figuratively) wanting my accumulated resources to rescue them, after they wasted theirs. If you think living at the poverty line is a great lifestyle choice, why aren’t you doing it now so you can bank a little for the inevitable problems down the road?

As I mentioned upthread, I’m trying to fend off the inevitable requests for assistance and housing from the ne’er-do-wells. They look at our empty-nest 4 bedroom (paid off) house in the burbs and think it would be a nice place to crash. Frankly, if you include the new RV and the hunting cabin, we could provide 7-8 extra beds for the newly needy. Because, you know… we’re “lucky”. :rolleyes:

And if there’s an earthquake, or terrible tornado, we’ll throw our doors open wide. But not until then.

51

We are (supposedly) fighting ignorance here. Partial privatization, slowing the growth or increases in lean times, not expanding SS beyond it’s original intent and a cite showing that republicans opposed social security in 1935 doesn’t in anyway equate to “republicans have been trying to kill Social Security since it was enacted.”

I thought the belief that the government was going to put grandma out on the street was urban legend that was common knowledge.

Hyperbole just isn’t helping.

52

Remember, the baby boom was about 20 years long. Boomers born in 1946 may well have though they’d get a job that they would keep forever like their parents- and they wouldn’t have been crazy to think that. Those of who were born in the early sixties are another story- we should not have expected a secure There was so much change in that time period that it often doesn’t make sense to think of Boomers as a single group - just as an example, the Vietnam war ended before I was in high school.

Secure factory jobs were disappearing like smoke when I was in high school, too - but the leading edge of baby boomers had already been out of school and working for over ten years by then.

53

Those are good points. I probably need to confine my ire to my own age group (and in fact, those are the anecdotal examples that are vexing me).

I also realize there are legitimate reasons for being unable to prepare, even for the boomer demographic. If it hasn’t been clear, I’m furious mainly at the high-earners who squandered everything and are now expecting others (meaning me and a lot of struggling millennials) to cover for them.

54

[QUOTE=Mrdeals]

Have these doomsayers taken into account the savings of the boomers? I know it’s not true for every one, but many of these people retiring have IRAs, 401k, 403b, CDs, and money under a mattress.

If each of these 10,000 people spend down their savings at $1,000 per month, that is $10,000,000 per month going into the economy in the form of purchasing food and goods.
[/QUOTE]
How much is that going to help?

The US economy is, what, $17T per year, which is $1.42T per month. $10M per month increase would be something like 0.000007%. And some of the investments you mention would have already been subject to tax. How much would it help?

Regards,
Shodan

55

Google says baby boomers, born 1946 to 1964, 76 million.
Assuming 20% saved enough to have a decent income in retirement, let’s say an extra $30,000 a year above SS.

76M x $30,000 / 5 = $456B

That’s a significant lump in the US economy - not earth-shattering or game-changing, but decently large. It’s also a significant draw-down of available capital.

The other point is that as people get old and retire (or partially retire) good help is hard to find. If the USA can actually put a lid on its illegal immigration, the demand for workers will get strong and wages will go up, recognition for good employees will become an important factor, as will good working conditions. A rising tide lifts all boats, but I suspect productive workers will especially benefit.

(I recall before the market crash in 2008, I was in Florida and there were “Help Wanted” signed everywhere - because of the demographics, I assume. the same problem has distorted labour markets in Canada due to the draw of the Alberta oil industry.)

56

This. Is what worries me. Well funded Boomer retirees will barely move the needle on the economy compared with the numbers with next to nothing who follow.

57

There are in any transaction, 3 variables - cost, volume, and quality. (Timelines maybe could be seen as a feature of volume)

To expand on my bit about labour shortages… If the millennial generation is in short supply, and drives up wages, then it will be harder, for example, to find people willing to change a 90-year-old’s diaper for minimum wage. Then what happens? Either the cost of care goes up, the available spots go down, or diapers get changed a lot less often for those who can’t afford the deluxe care… or a combination of all three. The same with every other service for retirees that relies on doing a crappy job for low wages. Costs will go up, and taxpayers will foot the bill. (And/or the government gets into more serious deficit spending, which only pushes the problem down the road a decade).

All in all, better to have money than not if retiring; better to have an in-demand skill than not, if not yet near retirement. That’s always the case, it’s just going to get more urgent.

58

Yeah but the thing is those people are already here and spending. I don’t foresee an increase in my spending when I retire. The fact that I’ll be spending income from my 401k instead of from my salary has no effect on the economy. The guy who gets my job will likely see an increase in his wages, but not enough to move the needle.

The boomers who retire aren’t going to suddenly cash in million dollar stock portfolios and spend them. They’ll take million dollar stock portfolios, sell enough for two years expenses and put that in a money market account. Then they’ll take enough for five years expenses and put that in a nice conservative bond fund leaving the rest in stocks. Once a year they’ll move money from the bonds to the money market and from the stocks to the bonds. If you’ve got a million dollars you should be able to draw $40,000 pretty much ad infinitum.

My 401k will need to work a little harder than some people’s, I changed jobs twice and the 17 years pension service I had on the first job pays me a paltry pension of around $5,000 a year since it’s based on a salary from the 1980’s, and the second job I had started out with a defined benefit pension but when we were purchased by a European firm they eliminated it with a lowball buyout. I’ll have 15 years service with my current employer at retirement age, and that will be good for around $25,000 a year. That, with the $5,000 from the first job plus social security will cover my basic living needs, but anything over and above that will have to come out of savings. I won’t be drinking 40 year old scotch, but I won’t be eating cat food either.

59

This discussion reminds me of a recent psychology experiment which seems to show that people who benefit from positive things that are outside their own control nonetheless give themselves credit for the outcome whereas people who experience negative things that are outside their own control tend to acknowledge that the outcome was rigged against them.

In simpler terms, people who experience bad fortune say “It’s not my fault” and people who experience good fortune say “I’m awesome!”

I have to admit that I’ve fallen into this trap myself. When things went well, I gave myself credit for it, and when things went badly, I blamed it on bad luck. I think maybe the balanced view is to admit that we have a lot less control over things than we like to think.

60

But that’s what I’m saying too. There won’t be 76M boomers cashing in half a million at once - but there will be a steady and fairly large amount cashing in every year over 30 years. For 30 years, people will be selling stocks and bonds in larger quantities than others will be buying them unless millennials begin to have really good jobs and start saving like crazy. This cashing will be a long term drain on the market - more sellers of financial assets than buyers, less cash stored in the system for companies borrowing to create capital. More sellers than buyers will drive down the stock prices.

Similarly, defined benefit pension plans are wrapping up, all the people collecting will be cashing over the next decades, out but the plans typically aren’t offered to newcomers. (My previous company switched to Registered Savings / Defined Contribution plan for new employees about 10 years ago - much later than many others) More assets being liquidated.

$30,000 a year is not a luxurious income, even with Social Security added to that.

The other problem is, as I mentioned - the wild swings in the equities market - the regular “crashes” - seem to be getting more and more extreme. If you have to do that 5-year move at the bottom of a market, you’ll eat up a lot more principal than if you can time it anytime over 10 years.