Matt HealeyMonday,11 February 2013

The Snap:

According to The New York Times, the recent recession has been the most brutal on the Boomers. The problem is that they have had their saving and house values fall too close to retirement, so they do not have time to recover. Additionally, if they get laid off then they are unable to get another job, because many of their skills have become outdated.

The Download:

I feel sorry for people who are unemployed. I feel for people who had their savings cut in half by the Global Financial Crisis (GFC). Having the value of your house drop significantly sucks. I get it. This is a bad situation. However, what I refuse to do is to feel sorry for this generation. This is the generation that has refused to save anything for retirement. In 2011, many had less than $25,000 saved. That is way too little. Because of the low savings rates, they have had to stay in higher risk investments like stocks for a longer period of time, rather than being able to shift into bonds as they approached retirement. Now I understand that the yield on bonds is low. Very low. But if the retirement savings had been higher, the low yield would be bad, but not catastrophic.

So let’s look at how this generation got to this point. Let’s take a Boomer who was born in 1950. That person graduated from college in the early 1970s. Turned 30 in 1980. I don’t remember all of the 1980s — after all I turned 10 in 1980, and have blocked out all of my childhood. But the 1980s were the decade of the yuppies and conspicuous consumption. This was a decade where “keeping up with the Joneses” was of paramount importance. Needless to say, savings was not high on the priority list. We then entered the 1990s. This was the decade of “Irrational Exuberance.” Stocks went on a tremendous run. The wealth effect kicked in and McMansions started popping up everywhere. Clearly savings was not high on the priority list. We then hit the early 2000s and the dot com bubble burst. At this point our beloved Boomer, now age 50, said the following “OMG (Our Boomer is still trying to channel his/her youth), I need to start saving for retirement.” But by now, it is way too late. The economy is in recession, stocks are down, and this person is now living from paycheck to paycheck to support a mortgage (on way too big of a house) and a lifestyle they that cannot afford. So they do what they can. But since they need to make up so much ground, they have to be 100% in high risk assets like stocks. Had they started investing in the 1980s rather than embracing conspicuous consumption, or the 1990s rather then espousing irrational exuberance, then they would have been shifting money from stocks to bonds. This transition would have continued until today and the GFC would not have totally destroyed this generation.

So I get it, they are in trouble. But the trouble has been caused by 30 years of bad choices. Complaining now is equivalent to complaining that the guy in front of you stopped too short and that is why you ran into him on the highway. That excuse does not fly if you were following 2 inches behind him at 65 MPH. That essentially is what Boomers have been doing and now they are going to pay for it. So I refuse to feel sorry for them when they complain that they will have to “work until death.”

Hat Tips:

NYT, Boomer savings, 1980s, 1990s, McMansion, Image Credit: Flickr

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