Retiring Baby Boomers: Fewer Than Expected
At 78 million strong, baby boomers have always been a targeted demographic. Dubbed by the Social Security Administration as a “silver tsunami,” the baby boomers are an attractive opportunity for the financial services industry.
The financial services industry launched advertising campaigns geared towards boomers early. Many such firms have counted on the baby boomers to fuel growth in new products, from target-date mutual funds to investment funds that buy retirement businesses to expanded offerings form leisure industries. The experts, however, were wrong. For at least the next 25 years, as reported in the May 22, 2008 issue of Business Week, the retirement market will be much smaller than the often-cited 78 million. In fact, the growth rate will be less than four percent annually or may even be zero.
Coyne Partnership actually ran the numbers to see exactly when this silver tsunami will hit and exactly how large it would be. According to the firm, if the trend to work longer stops today, the number of “true retirees,” which excludes those who never worked in the first place, will only reach 46 million in 2017. Given that the trend for persons over age 50 to work longer has been underway since before 1994, it is not likely to decrease. A more probable scenario is one in which Americans choose to work beyond age 65, producing less than 36 million retirees in 2017.
At present, there are already 35 million true retirees, which essentially means that there will be no growth at all. Adding in Americans who never worked (14 million today vs. 17 million in 2017), the highest growth assumption is still less than three percent, and the expected growth rate is under one percent.
Since the 78 million baby boomers were born over a period of 18 years (from 1946 to 1964), one might expect about 4 million retirees per year as they age. This year, the number of pre-boomer retirees was about 1.8 million. Accounting for 15 percent of people who did not participate in the workforce, 18 percent who were employed part time, and the number of people who work well past the age of 65, the number of retirees is expected to stay under 2.6 million per year for the next 25 years.
The biggest losers in the impending retirement wave will likely be the financial institutions: banks, brokerage firms, and insurance companies who have already invested heavily in the retirement financial services market. In fact, financiers face a marketplace that is already at capacity and can expect price declines for their services. Industries that have already begun to spend in advance on presumed growth are sure to lose as well. On the other hand, the big winners may well be everyone else.
Demographers forecasted serious labor shortages as a result of the retiring boomer workforce. Since the turnover is less severe than previously estimated, there will be fewer retirees, more workers, and therefore less of an economic burden than previously expected.
All investors should be wary of financial services firms that have introduced products designed for the baby boomer retirees who never materialize. Such firms may attempt to find a way to sell them to somebody.
