Baby Boomer Retirement Doesn’t Mean Bust | Insights

Retirement


A new study shows that the number of retirees continues to rise.

What happened to America’s demographic time bomb? With more baby boomers retiring by the day and declining birth rates in recent decades, many fear that the U.S. economy will soon run out of fuel for consumers. As this large generation is said to no longer work, invest, or consume, it is feared that the baby boomers will transform from economic contributors to spendthrifts, sucking stock market profits in the meantime. Some people are concerned. This view is so popular that there are even books written about it. . It’s been a long (inaccurate and possibly ageist) story, and we’ve taken issue with it for a long time. After all, retirees spend money too. An interesting new report backs this up, alleviating demographic concerns. We think this is another reminder that aging is not a stock market sinkhole.

Conventional wisdom holds that when you retire, you spend less. First, you won’t have to spend money on professional attire or your daily commute, and you won’t have to socialize with your colleagues over coffee, lunch, or happy hour. Second, once people are able to live off their savings and Social Security, they will cut back on discretionary spending and focus on just the basics to extend their resources long after retirement. .

For us, this was nothing compared to a basic eyeball test. As I look around our communities and families, I see retirees thriving and seizing life. Travel, pamper your grandchildren, pick up new hobbies, organize charity activities, host dinners and parties, plant your garden, enjoy your favorite local café. Many “retirees” are also nominally choosing to work in other occupations they love more. However, such observations are often not quantifiable, which is where new research emerges.

As introduced in washington post According to this week’s article, a Bank of America (BofA) account holder analysis found: Most of these gains were concentrated on leisure spending such as travel and hotels. …Youth spending on airline tickets and hotels fell 5% in April from a year earlier, according to Bank of America credit card data. For seniors, however, spending in these categories increased as going out became more comfortable. Overall, baby boomers spent 2 percentage points higher than a year ago, while traditionalists spent 5 percentage points higher, while a rebound in younger generations pushed overall spending down 0.2 percentage points. “[i]

The article attributes this disparity in part to a phenomenon known as “revenge spending,” where people are making up for lost time during the COVID-19 lockdowns and doing all kinds of restricted activities. It is hypothesized that We don’t doubt it, but given that lockdowns and travel restrictions are affecting all age groups, it’s not the answer to why seniors spend so much. Sure, older people were more vulnerable to COVID-19 itself, but fear and caregiving responsibilities kept so many working-age people indoors as well.

BofA’s analysis why Behind the spending gap. Not only do retirees enjoy social security increases that outpace wage growth over the past 12 months, but retirees’ overheads are typically much lower than their younger peers, with more spending for discretionary purposes. You can keep your cash. They don’t commute long distances, aren’t likely to be charged large tuition fees, and many have paid off their mortgages or their payments have led to the past low interest rates and declining house prices. Either Therefore, they are far less exposed to today’s high housing costs than younger generations who rent or cover large mortgage payments.

The article further argues that this is a sign of a fragile economy, especially when student loan payments resume, as the overburdened younger generation will be unable to support growth. However, we believe this is nothing new. Economists and sociologists have a long, long history of arguing that younger generations do not have the same economic prospects as their ancestors. When many of their ancestors were relatively young, they thought of baby boomers as a group of flower children who rejected the hard work of their parents. As with subsequent generations, reality turned out to be very different from that caricature. Remember when Generation X was a bunch of chain-smokers, flannel-wearing coffee chuggers, and never contributing slackers? have repaid Remember when millennials weren’t forming families, buying homes, or joining the adult world in general? We are in the prime of home buying, except perhaps in the more expensive coastal metropolises. Now that it’s Gen Z’s turn to be in the spotlight that ‘they can’t do anything’, the stereotype of cash-strapped TikTokers all going into rent and debt turns out to be just as unfounded. We are confident that it will be proven.

For us, all this is just generational trends happening as usual. New graduates enter the workforce in entry-level jobs, which are typically low-paying, less job-secure and less interesting. As they gain experience and hone their skills, the jobs become more attractive, the salaries higher, and their skills more sought after. Their peak earnings come in middle age, just in time to finance their college education and recoup their retirement savings. Retirement itself is no small thing, and increasingly it’s time to do all the things people didn’t have time to do when they were working, which they could afford by hard saving and budgeting when they were working. increase. Their spending helps keep national demand high and drive growth.

Stocks know demographics. They know what people are saying about different age groups and understand the size of those populations. They have seen commentary for decades claiming that retiring baby boomers are a drag on spending and growth. If that were true, the market would have priced stocks long ago, permanently resetting to low levels due to the lack of growth potential. On the contrary, despite a bear market like last year’s in the middle, consumer spending continued to rise, suggesting that rumors of a retirement in consumer spending had been greatly exaggerated. The stock market does an excellent job of discerning and valuing reality, and it knows all too well that retirees are economic forces, not economic thugs.


[i] “The spending gap between retirees and young people is widening,” Abha Bhattarai, Washington PostJune 14, 2023.



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