The Baby Boomer Bible

Smart Money for a Smart Generation

01.The Boomer Persona

If you were born between 1946 and 1964, you’re a Baby boomer – and a child of the Greatest Generation. Boomers were raised on the belief that hard work could bring just about anything one desires, and their parents passed down an idyllic notion of American freedom – free enterprise, free markets and free choice.

Boomers remember ‘I Love Lucy’ re-runs, drive-in movies, Mr. Green Jeans, Bonanza, the Beatles, the Dewey Decimal System, Waterbeds, Video Rentals, rotary phones, the Marlboro Man, SPAM, the Sears Catalog, fashion shoulder pads, and where they were during ‘The Miracle on Ice’!

Baby boomers are notoriously self-assured, self-su�cient and self-motivated. They’re an optimistic lot that has been greatly influenced by the dramatic breakthroughs of their time, particularly in science and space exploration, gender and racial equality, and personal computing and internet technology.

They are the kids of the moon landing, the Vietnam War, the Civil Rights Movement, the Cold War, and the Reagan Revolution. In terms of wealth accumulation, boomers have greatly benefited from the soaring a�uence and surge in consumerism of the 1980’s and 1990’s.

Lawrence R. Samuel, Ph.D. recently wrote in Psychology Today,

Compared to the Gen Xers and the Millennials that follow, Boomers have generally cared less about making an impact and more about making money. They are now the richest generation in history and as they transition into retirement, concerns are being raised about rising life expectancy, shrinking Federal co�ers, soaring beneficiary-to-worker ratios and the soundness of Social Security, Medicare and the Federal Government itself. And then there’s the question of realistic post-employment costs – for housing, food, transportation and most importantly, medical care.

Growing up in the Cold War, when it was commonly believed that the world could blow up at any point, gave boomers a sense of urgency to accomplish great things, many of which they actually did. Boomers fought bravely in the Vietnam War, led a cultural revolution grounded in the noble ideas of peace and equality, and then embarked on careers that propelled this nation to become the most powerful and wealthiest in civilization. Along the way, they popularized if not downright invented things like rock 'n' roll, the computer, and the internet, all the while giving more money away to worthy causes than any previous generation.”

Baby boomers are retiring at a rate of about 10,000 per day and the burning question for this generation of almost 75 million strong is - are they prepared?

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And in return, for “working for the man,” many Boomers expected cradle-to-grave employment and a golden parachute retirement. Along the way, they amassed significant purchasing power and now long to “Take the Money and Run” – per the Steve Miller Band from back in 1976.

They were the first modern generation to witness an economy heal and recover from war. They were the first to grapple with impeachment, navigate an energy crisis, tame runaway inflation, and recover from a period of deep, economic stagnation. And when the smoke cleared, they doubled-down on corporate America and popularized greed.

Above all, Baby boomers very much believe in the American Dream and fully expect to enjoy the fruits of all their many years of hard work – well into retirement.

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Carly Simon’s 1972 anthem, “You’re So Vain,” aptly describes an entire generation with “one eye in the mirror” convinced that everything is about them. Boomer egoism is seen as a response to both the counterculture of the 1960’s and the economic prosperity of the 1980’s.

Amy Henderson, a cultural historian recently wrote in Smithsonian Magazine, “before there were ‘selfies,’ there was Me.” Indeed, Baby boomers are considered the “Me” generation because of their perceived self-involvement, narcissism, and obsession with status.

Boomers do work hard, however. They’ve been considered the most industrious generation to grace the history books. They’re goal-centric and resourceful. Often categorized as unrestrained capitalists, unapologetic consumerists, and hopeless workaholics – Boomers aspired to early home ownership, white picket fences, suburban living, and marriage. Almost 50% tied the knot between the ages of 18 to 32.

02.Why Boomers Are Different

Baby boomers are distinctive for their notorious embrace of social status and, in a word, vanity. They were the well-paid, ‘Beemer-driving’ yuppies. They were the original gym rats and thigh-mastering jazzercisers with buns and abs of steel. They made plastic surgery and liposuction downright hip and continue to be obsessed with the allure of youth.

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Baby boomers also grew up at a time when employees paid their dues and work - life balance or the coveted equilibrium between private and professional life - was simply not aspired to.

First of all, the oldest boomers, who would have been 65 back in 2011, reached their golden years while the U.S. was still mired in an economic malaise giving them little time to recover from the panicked selling, falling wages and mass property depreciation of the financial crisis. Some remained on the sidelines and missed the stock rebound while others simply found it di�cult to claw back amid the prolonged low-interest rate environment that undercut the yields on bond funds. Secondly, a 2019 retirement survey by GoBankingRates revealed that more than half of younger boomers are reporting less than $10,000 in savings as they’re still paying down debt, struggling with mortgage payments, and have little left over to put away.

03.Retirement Woes Only Boomers Understand

So how are baby boomers faring in these categories?

Leg One – ‘Private Savings’

For generations, retirement income has been based on what is known as the “three-legged stool” which refers to private savings, an employer pension and social security. The comparative is attributed to an actuary at the Metropolitan Life Insurance Company who referenced the various planning “legs” of retirement at a social security forum back in 1949.

According to the Insured Retirement Institute’s (IRI), “Boomers Expectations for Retirement 2019,” some 45% of baby boomers have no retirement savings. What’s perhaps more distressing is that about 1 in 5 had savings at one point but no longer do. So, why is that?

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Figure 16: Have Retirement Saving

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YesNo end never haveNo but once didDon’t know

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Medicare

Long-term care insurance

Government services

Medicaid

Out-of-pocket

Credit cards

Home equity loan

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Figure 15: Expected Sources of Long-term Care Cost Coverage

“Medicare does not pay for most long-term care services or personal care.” There are exceptions following certain hospitalizations and to prevent further decline from medical conditions like Parkinson's or Alzheimer's disease. But for the rest of the baby boomer population, private long-term care insurance is strongly urged and yet only about 8% own such a policy. Without su�cient cash on hand, an accurate cost analysis, or a clear grasp of federal health coverage – baby boomers are failing the private savings test.

Baby boomers also tend to dramatically underestimate their retirement costs. According to a recent AARP survey, 75% have not factored health care into their retirement planning. The IRI also reports that boomers misunderstand what services Medicare and Medicaid will cover. Almost half believe that Medicare will pay for long-term care costs. The Department of Health and Human Services expressly states, however that,

There was a time when most workers had a “cradle to grave” relationship with their employers. Americans essentially devoted themselves to one company and in return for years of service, received a monthly “pension” check after retirement for as long as they lived. This is a defined benefit plan. And it is wholly funded and managed by the employer and guaranteed for life. A defined benefit plan can cover a significant portion of an employee’s salary, and it was once the Holy Grail of retirement income.

Leg Two – ‘The Employer Pension’

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But as longevity increased, companies found it hard to make a profit burdened by hefty monthly payments to retirees some ten even twenty years after their farewell party. The cost of administering pension plans also skyrocketed prompting corporations to look for alternative ways to create post-retirement security for their work force without going broke.

They found it in section 401(k) of the Revenue Act of 1978 which contained a provision that allowed employees to funnel pre-tax dollars into a retirement plan. This shifted the responsibility from the employer to employee, putting the latter in complete control of fund contributions and investment mix. The 401(k) has become popular with employers because it reduces their liabilities and is packed with tax incentives. Employees find the 401(k) an easy and e�ective way to save, and in many cases, their companies match their contributions.

According to a CNN study, the percentage of workers in the private sector that now hold a defined benefit pension plan as their only retirement account is just 4%, down from 60% in the 1980’s. And industries that still o�er traditional pensions like those negotiated by large unions like the steel workers, auto workers, and public service workers – are actively trying to re-negotiate them away.

The demise of the defined benefit plan and the subsequent rise of the 401(k) has made baby boomers the first generation to navigate retirement more or less on their own, self-directing their money, determining the pace of savings, and dabbling in Wall Street at their own peril. They are also the first to approach their golden years without a guaranteed monthly check and longevity protection – meaning that if they outlive their savings, they’re simply out of luck. For baby boomers, this has opened the door to risk and a looming retirement crisis.

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Defined benefit plans or employer sponsored pensions were once the most popular retirement programs available but are now an endangered species.

US companies o�ering defined benefit pensions (minimum 100 enrollees)

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According to investment advisor and author Wes Moss, “Pensions are now the dinosaurs of retirement income. Once prevalent, pension benefits have gone by the wayside; almost entirely replaced by employee-driven retire-ment plans, such as 401(k)s.” The 401(k), a defined-contribution account was initially designed to supplement pension income, but is now being used as the only source of retirement monies by countless baby boomers.

Age 62-66

Figure 21: Expected Sources of Guaranteed Lifetime Income by Age Group

Social Security Public Pension

Age 56-61

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23%29%

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Private Pension Personal Annuity Reverse Morigage None

Age 67-72

According to the Social Security Administration, 90% of today’s retirees receive social security benefits. The federal Old-Age, Survi-vors, and Disability Insurance program was established back in 1935 by President Franklin D. Roosevelt, but it was never meant to be a primary source of retirement income. Its original intent was to supplement low-income workers for several years during retirement.

Today it provides the majority of retirement income for most U.S. seniors. According the Center on Budget and Policy Priorities (CBPP), “for about half of seniors, it provides at least 50 percent of their income, and for about 1 in 4 seniors, it provides at least 90 percent of income.” This was never the purpose of the program. It was always intended to replace a portion of pre-retirement income based on a lifetime earnings. Social Security benefits are far more modest than people realize and at best, provide a foundation upon which to build a more robust retirement plan.

According to AARP, the average social security benefit in 2020 is about $1,503 a month, or just $18,036 a year – far less than the standard working wage. The Bureau of Labor Statistics (BLS) estimates that 65+ households spend about $45,756 a year or $3,800 a month and typical expenditures include household, automobile/transportation, family care, medical/health and living expenses. According to the BLS, the monthly breakdown looks roughly like this: Housing: $1,322, Transportation: $567, Healthcare: $499, Food: $483, Personal insurance/pension: $237.

Leg Three – ‘Social Security’

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Throughout the life of the average baby boomer, Social Security has faced numerous funding shortfalls. In the 1970’s the program fell out of actuarial balance for the first time in its history and remained in an annual deficit from 1975-1981. President Ronald Reagan created a commission to try to keep Social Security afloat which resulted in raising the retirement age and taxing benefits. President George W. Bush also grappled with solvency issues but neither the Bush administration nor the Obama administration took definitive action to put the program back in the black or keep it financially stable long term.

The program has the funds to pay benefits for the next 16 years but will then face a critical shortfall – and that deficit according to the CBPP, amounts to about 1 percent of gross domestic product (GDP) over the next 75 years, and about 1.4% of GDP in the 75th year.

Policy makers must address Social Security’s funding shortages. Its ongoing “Rob-Peter-to-pay-Paul” strategy will not only consume a vast portion of national resources going forward – but could very well jeopardize social security benefits for the younger baby boomers who contributed to the program over many decades.

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In 2018, the Social Security Administration began paying out more than it takes in for the first time since 1982.

04.Greed ‘Was’ Good

Baby boomers love their homes and despite the housing crisis of a decade ago, they continue to place great value and comfort in holding real estate. A study by Chase Bank found that 76% percent of boomers own homes and the majority are still making mortgage payments. With the average monthly Social Security disbursement just $1,503 and the average mortgage payment about $1,200 – some retired boomers are, in essence, dumping their social security checks into their houses.

According to Fannie Mae, paying o� a mortgage was “once a widespread rite of passage” for those approaching retirement. This is no longer the case. Data indicates that boomers are more likely to carry a mortgage into their retirement years than the prior generation:

Back in 2008, the majority of Americans mistakenly believed their homes would continue to increase in value and many got caught in the subprime meltdown of 2007-2009. Baby boomers are no exception. In 2020, the housing market is at risk again. More than 50% of current U.S. mortgage originations and 45% of servicing are provided by “non-banks,” or Housing Specialty Lenders who will be greatly stressed if homeowners start missing mortgage payments due to an economic downturn. HSL’s must remit monies to government agencies and if they face a liquidity crisis, the bottom could fall out of the housing market. Likewise, commercial real estate, (hotels, restaurants, bars, etc.), and the rental industry would also face lost income, missed payments, and a domino e�ect that would squeeze property owners and ignite yet another mortgage crisis.

The leading edge of the large Baby Boom generation has reached retirement age with a greater likelihood of carrying housing debt, raising concerns about their retirement financial security. The oldest Boomers, who were aged 65-69 in 2015, were 10 percentage points less likely to own their homes outright than were pre-Boomer homeowners of the same age in 2000.”

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Boomers Fall For Stocks

The generation is increasingly exeeding rocommended allocato equities

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On March 20th, Wall Street closed out its worst week since the 2008 financial crisis. The sello� erased all the gains achieved since President Trump took o�ce. On March 12th the Dow dropped an astonishing 2,353 pts — capping o� the worst single-day point drop in history. According to Investor’s Business Daily, every American lost an average of $20,000. “That's not an inconsequential sum. It's equivalent to roughly a quarter of the median U.S. annual household income, gone, in just two weeks.” The average Boomer likely lost more than that.

Playing the stock market is perfectly fine for those in their 20’s, 30’s, 40’s and even early 50’s but closer to retirement, it becomes a di�erent ballgame for one, defining reason – time. The Motley Fool explains why,

With much of their wealth sitting in real estate and the stock market, Baby boomers are setting themselves up for trouble.

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Baby boomers also love Wall Street. “Greed may be good,” but it carries great risk. As a generation, boomers are notoriously over-leveraged in stocks. Most had been riding the protracted bull market into their retirement. According to Fidelity Investments, at the end of 2019 more than a third of baby boomers had breached their recommended allocation of stocks and one in ten were holding 100% equities.

Needless to say, the Boomers are not adequately diversi-fying. A recent analysis by financial consultancy firm FeeX revealed that 30% of 60-65 year olds have put all of their money into the stock market while more than half had over 70% of their assets invested in equities.

You don't have a lot of time to ride out potential market downturns, and the last thing you want is for your portfolio value to take a massive hit in the year leading up to your retirement. If that happens and you're forced to start withdrawing from your savings at a time when your portfolio is worth less.”

During a n economic downturn, real estate becomes illiquid and stocks often succumb to volatility, fear, and panic.

05.Boomers are known for their embrace of excess. They’re a large and loud generation that took the reins and forever changed America. They were hippies and yuppies. They liked ‘rock and roll’ and disco, and they were the first adopters of new technologies from personal computing to the world wide web. But as they embrace retirement, an alarming percentage are playing fast and loose with their future. They’re either investing too aggressively or not at all. Some are banking on Social Security, others on inadequate retirement accounts, while others have no clear plan – but the majority tend to underestimate the sheer cost of never working again.

Still, they remain a self-reliant group and one that has always found a positive way forward. Perhaps this is why so many have embraced gold as an investment. It exists outside the reach of governments, politics and policy. It is one of world’s most reliable safety nets and the closest money has ever come to a standard of stable value.

Gold is also a proven “everything hedge” and a crisis commodity that has stood the test of time. For baby boomers, it is also solid, old school and real. When you hold a sleeve of gold coins, you’re holding a physical asset not the promise of one. And there is perhaps no better retirement solution for a self-driven generation than a self-directed IRA rolled into pure gold.

Boomers are once again turning on, tuning in, and dropping out – and they’re buying gold to balance their portfolios and safeguard their future. Gold will always be in demand because it is tangible, liquid and portable. It provides wealth protection in a time of crisis and peace of mind in a moment of chaos. It is smart money for a smart generation!

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Smart Money for a Smart Generation

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