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Thursday, March 12, 2009

Epic Fail: The Baby Boomers are Broke

The illusion of prosperity is no more...

No amount of stimulus, temporary tax cuts or humungous bailouts will save the Baby Boomers.

The Wealth of the Baby Boom Cohorts After the Collapse

Executive Summary

This paper makes projections of wealth for 2009 for the baby boom cohorts (ages 45 to 54 and ages 55-64) using data from the 2004 Survey of Consumer Finance. It updates an earlier paper on this topic from June of 2008 using projections for housing and stock values that are more plausible given the sharp downturn in both markets over the last 8 months, and creates three possible scenarios— from best- to worst-case—for baby boomers’ wealth in 2009.

The projections show:

1) The median household with a person between the ages of 45 to 54 saw its net worth fall by more than 45 percent between 2004 and 2009, from $172,400 in 2004 to just $94,200 in 2009 (all amounts are in 2009 dollars). If the median late baby boomer household took all of the wealth they had accumulated during their lifetime, they would still owe approximately 45 percent of the price of a typical house1 and have no other assets whatsoever.2

2) The situation for early baby boomers is somewhat worse. The median household with a person between the ages of 55 and 64 saw its wealth fall by almost 50 percent from $315,400 in 2004 to $159,800 in 2009. This net worth would be sufficient to allow these households, who are at the peak ages for wealth accumulation, to cover approximately 90 percent of the cost of the typical house, if they had no other assets.

3) As a result of the plunge in house prices, many baby boomers now have little or no equity in their home. According to our calculations, of those who own their primary residence, nearly 30 percent of households headed by someone between the ages of 45 to 54 will need to bring money to their closing (to cover their mortgage and transactions costs) if they were to sell their home. More than 15 percent of the early baby boomers, people between the ages of 55 and 64, will need to bring money to a closing when they sell their home.

These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.

Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile. Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.

16 comments:

Anonymous said...

Should not have spent so much on unproductive military spending over the past forty years, eh America?
Now nothing left in the cupboard: remainder (and whatever could be borrowed, besides) has been squandered on investment banks and casinos (AIG) (which ought really to have made enough financing the Wars the Americans start every ten years or so).
Or will the maintenance of their military spending be America's No. 1 priority? No one ever mentions it, it seems.
Or maybe more prison and police spending is the answer to the poverty-stricken boomers?

Anonymous said...

Massive increase in military spending brought America out of the Great Depression: tough to repeat that, as they never cut their military spending after WW 2. No headroom left ...already the US counts for 50% of global military spending.
Will they shoot for 75%?

Anonymous said...

the generation that gave us the counterculture, the welfare state and massive taxation over people under 30, like me.


cry me a river. let them drown. We can stand this depression. And rejoice as the woodstockers face poverty. The only baby boomers that matter are those from my family.

Anonymous said...

What, no elderlys in your family?
Sent them off on an ice floe, have we?

Anonymous said...

"The only baby boomers that matter are those from my family"

Anonymous said...

Ah, thought those "boomers" were yer kids...loud babies...

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