Baby Boomers Face Early Retirement With No Money Saved

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A correction is always equal and opposite to the deception that preceded it. You can quote us on that, dear reader.

A correction is always deflationary too. Delusions and hopes push up asset prices. Reality and despair pull them back down. The latest figures show M2 – a measure of the money supply – no longer growing. True, the feds are desperately trying to increase the money supply with bailouts and tax rebates. But the bankers are running scared. They get their hands on some hard cash…and they want to hold onto it as long as possible. They figure they might need it.

This is the phenomenon that Keynes described as “pushing on a string.” The feds push. But the string bends.

Of course, it’s not just the bankers. Remember, bankers act like retail investors – and householders. And right now, they’re all feeling a bit under stress and looking for stray coins under the seat cushions.

Unemployment is rising. It is projected to hit more than 6% before the end of the year. In the last major recession – of the early ’90s – unemployment hit 7.8%. It could well reach up to 7% or 8%…or higher…this time too.

The combination of falling employment (including overtime and so forth) and falling house prices makes it almost impossible for the consumer to continue consuming in the manner to which he has become accustomed. We are watching the retail sales figures closely for proof. Broadly, from our great distance, the figures show little sign of a let-up in consumer spending. But when you look more closely, the picture is more interesting.

Consumer spending continued to rise in the last quarter, for example. But there were three important nuances:

First, most of the growth in consumption spending is no longer coming from the consumer. It is the government that is doing the spending. The feds are stepping up to the plate to try to compensate for weakening consumer spending (they don’t know they are doing this…they are just doing what comes naturally). Federal government spending rose at a real rate of 6.7% in the last quarter, while personal consumption rose only 1.5%.

Second, consumer spending is not even keeping up with consumer incomes. The feds handed out billions in tax rebates, which boosted incomes by 4% – more than twice the level of consumer spending increases. This tells us that consumers are trying to cut back.

But third, they’re finding it especially hard to cut back because prices are still rising. Ah, here’s the real complication. It’s a deflationary correction – we see that clearly, through our binoculars. But consumer prices are still going up. In June, consumer prices rose 0.8%. Doesn’t seem like much, but multiply that times twelve and you have an annual rate of nearly 10%. Prices for the essentials – food and fuel – have risen so much that the consumer has to spend all his money just to keep up. The broad figures show consumer spending rising…but the consumer is actually consuming less. He’s eating out less – so the restaurants are failing. He’s buying less – so the retailers are hurting. And he’s driving less – so gasoline sales, in gallons, are actually going down.

And pity the poor baby boomers! They’ve lived their whole lives with a pot of honey in their hands. Save money? Why bother? Na na na na live for today! The economy was always expanding…they were always getting richer…jobs were always plentiful…and so were credit cards. Now though, the tables are turning against the boomers. When companies lay off employees – they get rid of the middle-aged, expensive workers – the baby boomers. And since the poor boomers never bothered to save money – and since their houses are losing value – they now face retirement with no money in their pockets and no way to get more.

And now, even when they save money, they get kicked in the derriere. Interest rates are so low, they make almost nothing.

What are the poor baby boomers to do? D-O-W-N-S-I-Z-E in a hurry…

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. Do you really think that all boomers are not planning ahead. It is ridiculous to lump a group of people who are ready for retirement and think they will starve to death. I am not so sure the current generation is any better. True in years past pensions and gold watches were in order. Today people flit from job to job with hardly a care…carol stanley author of For Kids 59.99 and Over

    Reply
  2. Great, now we have Busted Baby Boomers trying to flog their books

    john , QLD
    August 8, 2008
    Reply
  3. Mr. Market, you say?

    What we have seen is not Libertarian Freedom ( Yes, Greenspan drank the Ann Rand Kool Aid ) but the law of the jungle, with the strong preying on the weak.

    Even Adam Smith recognized that it was in the interest of business to deceive and prey on the public, but to know that you have to actually read the book.

    Tell me how a Baby Boomer is responsible for his retirement investments being scalped by the market? And if they were managed by a company pension plan, well, the managers probably invested in derivatives because they were “sophisticated investors”.

    What we have seen is compensation based on performance, which encouraged high-risk high-return choices, which gave the people making them nine great years even if their company or investment went belly up the tenth. The people doing making these decisions were well compensated for this “success”.

    You might pause to think if the market for your myths has changed along with so many others.

    Bruce Williams
    November 5, 2008
    Reply
  4. Bill Bonner said:

    And pity the poor baby boomers! They’ve lived their whole lives with a pot of honey in their hands. Save money? Why bother? Na na na na live for today! The economy was always expanding…they were always getting richer…jobs were always plentiful…and so were credit cards. Now though, the tables are turning against the boomers. When companies lay off employees – they get rid of the middle-aged, expensive workers – the baby boomers. And since the poor boomers never bothered to save money – and since their houses are losing value – they now face retirement with no money in their pockets and no way to get more.
    ——————————————————————————

    What pot of honey? I earn minimum wage; the most I have ever earned in one year is $17K. And I have never had employer-provided fringe benefits. I still have student loan payments.

    So how much could I have realistically saved?

    And how can I earn more money?

    Reply
  5. p.s. I didn’t realize this was an Oz site; I am writing from USA. 17,000 USD currently exchanges to 27,370 AUD. Minimum wage for full time work in USA is approx 12,000 USD or 19,334 AUD.

    Reply
  6. Really well-researched piece on best retirement planning books.. Always keep blogging.

    Reply
  7. Hello!
    I particularly respect your article on Baby Boomers Face Early
    Retirement With No Money Saved and of course I will
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    Reply

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