Music icons Patti Smith, Carlos Santana, and Steven Tyler all share somethingin common—and it’s not just rock and roll. They’re baby boomers, the longest-living generation in the history of the United States.
According torecords from the U.S. Census Bureau, baby boomers—those born after the end of World War II, or from 1946 through 1964—number 73 million. Alsonotable: 2031 marks the year that the youngest boomers, those born in 1964, will turn 67 and become eligible to receive Social Security benefits.
In addition to concerns about the general aging of the U.S. population (over-65sare projected to make up 20% of the U.S. population by 2029), economists have expressed concern about the trickle-down economic effects as boomers reach their later years.
In this article, we take a look at the impact on the economy and the labor force that baby boomers are expected to have as they continue to reach retirement age.
Key Takeaways
- The baby boom generation encompasses those individuals born following World War II, from 1946 through 1964.
- Baby boomers lived through economically stable decades that have seen the country experience, with relatively few exceptions, high growth rates and economic prosperity.
- The Great Recession of 2008, however, caused many baby boomers to work extra years to make up for the losses of value that their retirement portfolios experienced.
- As more baby boomers retire from the workforce, economic growth could be impacted as retirees not only produce lessbut also consume and spend less.
- The workforce will have fewer workers to contribute through taxes to the nation's social programs (such as Social Security).
The Lucky Ones
Boomers have proven to be an astoundingly productive cohort. Part of their success comes down toluck. Economically speaking, they were born at the right time.
After enjoying childhoods during the high-growth andeconomically stable decades following World War II, they rode the crest of relative prosperity into middle age with just a handful of economic blips, like the 1979 energy crisis and the early 1980s recession.
Consider the height of the Clinton era. During the 1990s, labor force participation soared to an all-time high. That kid who worked two paper routes in 1965 would have been well-positioned to cash in on the dotcom boom of the 1990s at the peak of their earning years.
What will happen as more than 250,000 Americans celebrate their 67th birthdays each month? As more boomers head towardretirement, the impact onthe labor force and consumer spending is showing profound effects.
As boomers retire, expect wide-ranging effects. Not only do retirees produce and contribute less in an economic sense, they tend to spend less as well. That's not a recipe for economic growth.
There Were Bad Times
The devastating Great Recession that struck in 2008 has been widely blamed for a low workforce participation rate in the ensuing years.
Another cause of lower labor numbers can be chalked up to boomers who are now retiring in significant numbers, though many were forced to work extra years to compensate for retirement investments losses in the 2008–09 market crash.
Big Spenders on Their Children
Retirees tend to spend less. But one area where this generation is spending more? Their adult children. A substantial percentage of parents are providing some financial support for these children, with student loan assistance being a significant area of financial burden.
For many boomers, that financial assistance goes beyond student loans to housing. In February 2020, 47% of young adults aged 18 to 29 resided with one or both of their parents. As of July 2020, that number had surged to 52%—surpassing the previous peak last seen during the Great Depression. In 2022, 56% of adults aged 18 to 24 lived with their parents.
A Slowdown to Come?
The percentage of workers aged 55 and above grew from 13% of the workforce in 2000 to23% in 2021. According to the Bureau of Labor Statistics,25%will be 55 years old or older by 2031. Moreover, even though they make up only 35% of the population, older workers drive 40% of the national output.
Post-Boomer Bust?
Between bleak economic predictions, the subprime mortgage debacle, and widespread post-recession losses of retirement savings, no wonder some members of this generation are reluctant to retire. Even now, the generation that coined the phrase “live to work” is living up to its reputation.
This workplace longevity may prove a problem for younger workers who have struggled to find well-paid, stable work during levels of high unemployment. The upside? Retirement for this older cohort is as inevitable as the boomerang effect that will eventually create job availability.
Ultimately, some boomers take the live-to-work ethos to an extreme. That, or they need to continue working to build needed retirement savings. A 2013 Gallup poll about the consumer and workplace behaviors of baby boomers, posed this question: “At what age do you plan to retire?” For 10% ofrespondents, the answer was a succinct“Never.”
A 2023 Gallup survey found that just 39% of workers aged 50 to 64 felt that they had enough retirement savings for their retirement years. Many believed they'd need to work part-time after leaving the workforce.
What Was the Baby Boom?
The Baby Boom was the period of time starting in 1946 and extending to 1964 when life returned to normal after the terrible turbulence and strife of the Great Depression and World War II. The permanent return of service men and women to their families enabled couples to start families in what was, relatively speaking, an age of promise. Thus, the boom in babies being born during these decades.
Why Would Economic Growth Slow as Boomers Retire?
Research suggests that the huge number of workers leaving the labor force should affect productivity rates. That, plus the costs associated with an aging population, could put pressure on the economy.
How Is Baby Boomer Retirement Hard on Social Security?
It's seen as depleting the amount of money in the Social Security trust fund that supports the nation's elderly. That's because from each paycheck, every worker pays taxes into Social Security (and Medicare). If the workforce becomes smaller when boomers retire, less will be paid in even as a growing number of people start to draw on their Social Security benefits.
The Bottom Line
While baby boomers are working longer, their inevitable retirement will have widespread effects on the American economy.
Expect a big impact on consumer spending, as retirees not only produce lessbut also consume and spend less. In addition though, the mass retirements of boomers could have a positive boomerang effect on jobs for younger employees, freeing up positions for those who may be struggling to find work or to expand their employment opportunities.
