Baby boomers are changing the way they think about retirement, and in the process, driving the nation's economy down a revised path.
Federal Reserve Bank of Richmond Gov. Elizabeth Duke in a speech last week to economists shared some new information gathered by the Fed about how pre-retirees have been affected by the economic meltdown of 2008 and 2009.
Duke attributed much of the slow recovery in spending on baby boomers -- ages 50 to 61 -- who have tightened their purse strings. Whether they were among the 20 percent who gained money during the Great Recession or the 49 percent who saw their net worth decline by the equivalent of six months' or more worth of net income, boomers are spending less and rethinking retirement planning.
"It would be reasonable to expect households' plans and attitudes to vary based on the individual wealth outcomes they experienced. But in comparing responses from boomer families that lost wealth to those that gained wealth, we found remarkably similar answers," Duke said.
Across the board among recession winners and losers, more than 66 percent of boomers said they intended to work at least a year longer than they had planned in 2007. I also found it interesting that people who gained assets during the recession were the least likely to say they would spend them. Among boomers who lost six months' or more worth of assets in 2008 and 2009, 28 percent said in 2009 that if things improved for them, they intended to spend more. But of those boomers who gained assets during 2008 and 2009, only 18 percent said they were willing to increase their spending -- even if things continued to get better for them.
Duke sees all of this as a sign that it is going to take a long time to recover from this recession because the shock of the downturn drove a fundamental change in attitudes toward spending and saving. In other words, if you've got it, these days you're going to continue to sit on it, and as Duke points out, that's going to affect everyone:
"The baby-boom generation, by virtue of its sheer size, has had an outsized influence on the economy as it has entered every stage in the life cycle, and (this) is no exception," she said.