Boomers redefining retirement
Boomers will redefine retirement with enormous energy and creativity. Many will work well beyond age 65 and mostly by choice, seeing this as a time for advance not decline, according to Dr. Sherry Cooper, Chief Economist, BMO Capital Markets.
"Healthiest, wealthiest generation in history"
"The boomer generation will be reaching traditional retirement age very soon and the enormous wave of boomer retirees will crest in 2025," said Dr. Cooper. "With the dramatic rise in longevity, healthy goal-driven boomers will seek purposeful leisure - a time for regeneration, rejuvenation, and lower-stress contributions to society and their own personal wealth."
In an article in U.S. Banker, Cooper explains how boomers — unlike their parents — view retirement as a “period of personal diminishment, dependency, social isolation and stagnation, and they want none of it.” They will work longer partly out of necessity and partly because doing so “provides a sense of belonging and purpose, interaction with people of all ages and structures our daily living.”
“Retirement was never meant to last for decades, and current longevity is the reason why uncapped defined benefit (DB) pension plans are an unsustainable financial burden on business,” writes Cooper. “The demise of DB plans, as well as the sharp decline in employment tenure, has pushed the headache of retirement planning onto individuals. Most boomers are unprepared to support themselves (and often their ailing parents or adult children) over a multi-decade retirement period.”
Household wealth relative to income has fallen sharply, and roughly one-third of American boomer homeowners find themselves with mortgages that exceed the value of their homes. The recent rise in savings rates — while beneficial — has largely been the result of the government's tax-cut boost to disposable income. Spending as a share of pre-tax personal income has not declined at all. “The savings rate needs to climb much further to rebuild nest eggs and to lower household debt ratios to the pre-credit-boom levels of the mid-1990s,” says Cooper.
In the wake of the global financial crisis, the rules regarding portfolio longevity no longer apply, Cooper explains. Early retirees who were compelled to sell portfolio assets in 2008 have drastically reduced the longevity of their nest eggs, forcing many to return to work, slash their spending or start their own business.
“Boomers are still the healthiest, wealthiest generation in history,” she says. “They can and will work longer, cut their budgets and lower their expectations regarding retirement lifestyle and large bequests.” The “new frugality,” as she describes it, will consist of “affordable luxuries and travel-like experiences” such as home entertainment and personalized recreation. “Insurance-related products, such as annuities and guaranteed income products, though expensive, will become more popular as boomers reduce risk. People will want their banks to help them simplify their financial lives as the economy recovers.”
Cooper expects the effect on the workforce to be palpable, with a decline in the number of workers between ages 35 and 44 who cannot fully fill the gap in either numbers or experience, leaving the door open to returning boomers. Eager to retain their experience, employers will offer job flexibility and increasingly offer remote employment.
“To be sure, many boomers have been forced into temporary retirement by the crisis-induced downsizing, and some will need to switch careers or relocate for future re-employment,” she says. “For the vast majority, continued employment well beyond age 65 will be possible.”
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Cooper is the Global Economic Strategist at BMO Financial Group and Chief Economist at BMO Capital Markets.
