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Major Economic Changes Ahead as US Baby Boomers Retire - 2001-09-01


The baby boom generation, the 78 million born in the U.S. population explosion that followed World War II, are edging toward retirement age. Analysts anticipate their aging could generate some economic changes. It would not be the first economic change brought about by the baby boomers.

Because of their sheer size, Stanford economist John Shoven says, this generation has had a profound effect on the U.S. economy at every stage of development. "In the 1950s, the schools were bursting and it was difficult to accommodate the baby boomers," he explains. "In the 1970s, when they entered the job market in large numbers, they depressed the growth of wages."

And then, National Association of Realtors economist David Lereah notes, U.S. house prices jumped 54 percent between 1980 and 1990, when the baby boom generation went on a home buying spree. "It's not a coincidence that the stock market, the economy, the housing markets have all achieved almost record levels in the 1990s and going into the 2000s because of the boomers," he says. "They are entering their peak earning years, and they have been the driving force in the economy."

But what will happen as they pass through those peak earning years? David Lereah predicts national declines in consumer spending after 2009 and stock market declines as well. He says, "When you head toward retirement you tend to get more conservative, so there is a chance that there will be significant amounts of money that is taken out of stocks and put into more conservative bond funds."

That could mean a decade of lower stock prices. But according to David Lereah, there are variables. Spending and stock buying by the increasingly large U.S. immigrant population could offset that slide, for example.

For economist John Shoven, the biggest variable is the health and longevity of the baby boomers. "This generation may be the first generation to benefit from the molecular medicine that is being developed," he says. "So I think there is a very good chance that they will live substantially longer than their parents, and that will have consequences."

What kinds of consequences? That depends on how healthy they are. Will the baby boomers live longer productive lives as wage earners? Or will they live longer as dependent, elderly citizens? The health of the U.S. economy has a lot to do with the answer to those questions.

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