baby boomers stingy

Well that’s a provocative headline.  It was a question posed in a recent article in the Financial Review.  The full headline was… “Baby Boomers are loaded. Why are they so stingy?” Now like most newspaper headlines they are designed to get a reaction and encourage people to read. And to be fair this article certainly didn’t make the case all baby boomers were rich, nor that they were all stingy. But it did highlight some really interesting points.

Firstly there are lots of baby boomers. And as they have been retiring this wave of boomers has major economic consequences. They are leaving the workforce depriving us of experience, skills and labour. But instead of working and building a nest egg there is also an expectation that once retired they will spend more than they earn and gradually reduce their savings. This would pump more money into the economy, potentially increasing inflation but also economic growth and the growth of wages for younger workers.

This hasn’t actually been happening.  Recent evidence from around the world including Italy, Japan and the U.S.A indicates boomers are very often savers not spenders. Many die wealthier than when they retired.  

There are a few reasons for this which I’ll cover now.

  • Firstly, people are living longer. 150 years ago life expectancy in Australia was just 35 years. Today it is closer to 84 – a bit lower for men and a bit higher for women. And for someone already aged 67 their life expectancy is around 86. And with medical advances life expectancy could continue to increase. So your money needs to last longer and you don’t know exactly how much longer. So naturally some people will spend conservatively. Jeremy Duffield has written about this in his Retirement Made Simple series.
  • It’s difficult to know how much to spend when you also don’t know for sure how much your investments will earn. Again Jeremy has written about that recently.
  • It is very hard to get your head around spending your savings. This is particularly the case when you don’t have new income in the form of a salary to top it up. Having less and less each year is not the mindset many of us have.
  • Covid changed many people’s behaviour. For example retirees spend less on dining out now than they did pre Covid.
  • And finally there is the bequest factor. People inherit more today than they did 30-40 years ago.  Whether this is because people are wealthier and just naturally have more to leave their estate or because there is a stronger bequest motivation isn’t clear.  But it is clear bequests are growing.

I have written previously that it is nobody else’s business as to whether you choose to save, spend or leave everything to your estate. What I am more concerned about is people that let the uncertainties of life expectancy or investment returns stop them from enjoying their best possible retirement. So here are a couple of things that could help you think about your spending in retirement.

  • Check your life expectancy. Our life expectancy calculator can help you work out not only your own and your partner’s life expectancy but also the probability at least one of you will still be alive at ages 70, 80, 90 or 100.
  • Get a forecast of the impact different levels of spending will have on your remaining wealth at ages 70, 80 ,90 or 100. You can do this yourself here or else book a Retirement Forecasting appointment with one of our advisers.

So does any of this resonate with you?  Are a spender or a saver? And would you prefer to be doing more of the one or the other?