Are Boomers Really Unlucky, Moneywise?
We boomers had all last week (the anniversary of Woodstock) to remind ourselves how lucky we were to have come of age during the era of sex, drugs and rock n roll. Now that our nostalgia-induced buzz has faded, though, it's back to reality: recession, swollen college bills, blasted home values and shriveled 401(k)s-and reflections on how unlucky we've been, moneywise, ever since Woodstock.
How unlucky? If you were born in the 1950s, as most boomers were, you entered financial adulthood in the 1980s. Which means you started saving just in time to catch the greatest bull market of the 20th century -- except you had no money to take part. You reached your peak earning and saving years just as the fin de siecle bull tipped over into two successive world-class bear markets. As Generation X might put it, our timing sucked. And this T. Rowe Price study shows the consequences.
The chart shows how much money a typical saver would have at the end of two 20-year periods, a bearish decade followed by a bullish one, and vice versa. Then it reverses the decades to make this point: It's far better to have a bear occur early in your career, when less money is at stake. And you want any bull markets to come toward the end of your career.
source: T. Rowe Price Associates
In other words, we boomers got our timing precisely wrong. The T. Rowe study goes on to show what would have happened to two otherwise identical workers, one of who started investing in 1970 (the boomers' twin older sibling) and the other in 1980 (the boomer). While the older worker lost money early on, he or she caught the wave of the 1980s and 1990s bull markets and exited at just the right time in 2000. As a result, the hypothetical 1970s saver would have retired with $1.7 million. For the typical boomer, on the other hand, the tally at retirement comes to a mere $400,000. Remember, this is the same person, same lifetime salary, same amount of savings -- but they're separated at retirement by a more than four-fold difference in wealth just because of when they were born.
When I noted this inequity to John Ameriks, the head of Vanguard's Investment Counseling and Research think tank, he pointed out that trying to gauge a generation's lifelong "luck" at any moment in the financial cycle starts you down a pretty slippery philosophical slope. Boomers have done poorly in the financial cycle lottery, to be sure, but we've had our compensations (even without counting the sex, drugs and rock n roll):
- Except for the oldest boomers, some of whom went to VietNam, we've never had to fight a war.
- We'll get a better deal from Social Security than our kids will. No doubt, some benefit cuts will be needed to keep the program solvent, but boomers will be grandfathered or phased in. Our kids, meanwhile, will be stuck supporting us.
- Whatever happens, you won't lose as much as software mogul John McAfee.
The bottom line: More than you like to think, financial success is due to forces beyond your control, such as when in your life the financial cycles play out. All you can do is focus on what you can control -- save as much as you possibly can, stay out of debt, diversify widely, protect yourself with life and disability insurance, and nurture your human capital. As for the misfortune of having reached your peak earning years just at the beginning of the Great Recession, boomer, there's only one thing to do. In the words of retirement expert Alicia Munnell: "Suck it up."
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There's another factor, Eric.
C-R-I-M-E.
It's not a pleasant word, but when we read about things like 'usury' and 'swindling' in the words that were carved into ancient stone tablets we know we're not the first culture to have faced them. We don't chop people's hands off (the punishment of a common thief...) but perhaps we should take a lesson from the fact that other cultures DID.
Instead of forcibly interdicting the securities crimes of Wall Street, and the rampant bribery in the Beltway, we coddle it with euphemisms. We pretend that these men and women are not sociopaths. And so, hundreds of millions of people pay a terrible price.
We can take a lesson from a dog: "ka-RUNCH!" Take a bite out of High Crime.
It will make a difference. It is the one and only thing that will. Strip away the euphemisms, "call a spade a spade," and determine that it will no longer have any place (let alone a protected place) in our nation. Then, it will stop.
The oldest boomers have already been collecting SS benefits for about a year and a half. Boomer #1, the lady from Maryland, probably got her first payment in March 2008. She didn't sound as if she was hurting for money when she was interviewed in early 2008. Of course, if you spent your home equity and borrowed against your 401K plan to indulge your children with an out of town private college education, you can look forward to a very modest retirement. Good timing helps, but so does using your common sense.
"In other words, we boomers got our timing precisely wrong.
The T. Rowe study goes on to show what would have happened to two otherwise identical workers, one of who started investing in 1970 (the boomers' twin older sibling) and the other in 1980 (the boomer).
While the older worker lost money early on, he or she caught the wave of the 1980s and 1990s bull markets and exited at just the right time in 2000.
As a result, the hypothetical 1970s saver would have retired with $1.7 million.
For the typical boomer, on the other hand, the tally at retirement comes to a mere $400,000.
Remember, this is the same person, same lifetime salary, same amount of savings -- but they're separated at retirement by a more than four-fold difference in wealth just because of when they were born."
YEP. That's how it feels....
Bull.
This is how the Central Bankers claim their spoils in the Central Banking system.
Resetting to net worth of everyone so they can start the credit game and musicial chairs again.
Don't get caught without chair when the music stops.
Very insightful analysis, Mr. Schurenberg. It does confirm my suspicions about the standard of living inequities that exist between generations.
The older generations, before the boomers made out like bandits, hitting the financial cycles just right.
They also had the privilieges of retirement plans provided to most of them.
The boomers got the shaft on multiple fronts - reirement plans have ended, the 401 K plans that replaced them crashed to less than 50% of their value, we are losing our jobs and our homes, our homes have had major value losses, and our children cannot find jobs either.
The boomers put in a lot more blood, sweat and tears then most any modern generation, yet we boomers do not get to reap the rewards.
I figure it is like Moses was denied the "promised land", but he suffered and persevered for future generations to be there.
There are the few lucky ones that made it rich, and who help further tilt the scales of inequality.
The boomers have an unfinished job yet, and that is to correct this immoral economy we have.
I am tired of seeing the evil ones get all the rewards, it is time to reward everyone equitabily according to their true value to society.
Oh give me a break. Boomers have had plenty of opportunity... with at most ten years to retirement, you should have taken advantage of the 80s and 90s and by now be conservatively invested, so that last year you lost maybe 20% but no more. The key years to kick start your wealth are your 30's and 40's, and I think one could easily argue the Gen Xers are in far worse shape on that score than the boomers. And it's not because the boomers were some holier than thou generation. I've had my share of 120 hour work weeks (yah, I'm Gen X), and the 'greatest' generation is the one that shed blood, far far more than the boomers. In my experience, the one thing that boomers have ever been good at is whining about how everyone else made their lives miserable, and now that they are in control, whining about how tough they've had it. The fact is Gen Y & millenials are likely to have it toughest financially, because they'll be competing directly with educated people in China and India who will work for 1/3 the salary.
It is the boomers that are going to get hammered by no SS benefits, probably through inflation.
After the boomers there will plenty of working age people to support the next generation.
That's true simply because of the numbers. 80 million Boomers begat 46 million GenXers who begat 78 million Millennials. Boomers didn't have enough kids to perpetuate the system.
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The only misfortune the boomers suffered was to have the last 30 years run under conservative policies that allowed industries to be exported and which filled the prisons with harmless drug users to pretend that they were tough swaggering role models.
The world would be a whole lot better if we had Democrats running everything since 1980.
The Reagan Delusion is finally clearing up.
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