Report: Vast Majority of Baby Boomers Have Accumulated Little to No Wealth

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[This is the latest installment in Money Morning's ongoing "Financial Crisis Investing" series, which explores ways for individual investors to repair their finances and investment portfolios.]

By Mike Caggeso
Associate Editor
Money Morning

Attention Baby Boomers: If you are trying to sell your home, more than 30% of you will have to bring money to the table.

And the combination of falling house and stock values means that the vast majority of people near retirement have accumulated little or no wealth, meaning they will be almost completely reliant on Social Security and Medicare to support them in their retirement years.

These are the findings of "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble," a report by the Center for Economic and Policy Research (CEPR), a non-partisan research firm.

"The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners," said report co-author Dean Baker, who will testify today before the Senate Special Committee on Aging. "This reality is compounded by the recent collapse of the stock market. The result is that many baby boomers will only have Social Security and Medicare to rely on in their retirement."

Updating an earlier paper on the topic and using more plausible projections for housing and stock values given the sharp downturn in both markets over the last eight months, the report outlines two other scenarios for Baby Boomers' wealth in 2009.

In the first, and worst-case, scenario, the median household wealth for late Baby Boomers (ages 45 to 54) fell more than 45% between 2004 and 2009 – from $150,500 in 2004 to just $82,200 in 2009. And if they took all the wealth they accumulated in their lifetime, Baby Boomers would still owe more than half of the price of a typical house.

According to the second scenario, the median household wealth for people between the ages of 55 and 64 fell by nearly 38% between 2004 and 2009 – from $229,600 to $142,700. Though not particularly rosy, it's enough for those households to cover about 80% of the cost of their median home.

The CEPR report also says that for both age groups, those who have been renting in that same span will have more wealth in 2009.

"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," the report said.

Placing Blame and Changing Policy

Like house values, 401(k) and pension plans have been scorched by the global financial crisis.

Worldwide pension values fell from $25 trillion to $20 trillion in 2008 alone.

And in the 12 months after the U.S. stock market hit its record peak in October 2007, more than $1 trillion worth of stock market wealth held in 401(k)s and other "defined-contribution" plans was eviscerated. Add individual retirement accounts (IRAs) to the mix, and the lost wealth is more like $2 trillion.

Allowing financial bubbles to run their course – which has been the Federal Reserve's policy in the last decade – "virtually guarantees that tens of millions of people will reach retirement with little or nothing to support themselves other than their Social Security," the CEPR report says.

The report also blames policymakers for not identifying the current bubble as far back as 2002, and holds them responsible for drafting legislation that shieldes taxpayers from future downturns.

"These projections should highlight the importance of policies that combat financial bubbles," the report says. "While typical homeowners cannot be blamed for not recognizing the bubble, the economists and policy professionals who designed policies that pushed homeownership certainly can and should be blamed."

[Editor's Note: Money Morning Associate Editor Mike Caggeso has been chronicling the fallout investors have been experiencing from the ongoing U.S. financial crisis, and has also detailed some repair strategies for investors' pension and retirement plans. To read our report on this three-step retirement-repair plan, please click here. The report is free of charge.]

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  1. bob smith | February 28, 2009

    "Worldwide pension values fell from $25 billion to $20 billion in 2008 alone."

    ——-

    That's TRILLION, not "billion". Such glaring mistakes cause one to question the entire article.

  2. Jason | February 28, 2009

    Its 20 Trillion, not 20 billion… 20 billion is very little amount of money for pension plans.

  3. Paul | March 1, 2009

    Everyone has to learn to be financially literate. And for politicians and unions to promise everything in governmental and union pension plans, and for workers to believe – that's the height of fallacy and stupidity. They will reap what they sow. Unfortunately, the rest of us taxpayers and young folk will also have to eat their bitter harvest as they will make government rescue their pensions by taxing all of the rest of us to oblivion.

  4. Timothy R. Laurence | March 2, 2009

    Canadians, of which I am one – (you know, that strange population living on land one never sees on a U.S. TV weather program) – were more than pleased to receive President Barrack Obama on his FIRST official international visit. Footage showing a similar visit by former President George W. Bush during his second term was a touch less welcoming. Indeed Parliament Hill (the equivalent to Congress) was filled with hostile, angry protesters, necessitating President Bush to seek an alternate entrance. (Yes, even Canadians can show displeasure). In comparison, President Obama's reception was more like a 1960's love-fest. If nothing else Obama has (with the support of the American people) begun one of the most important missions of his tenure: the repair of America's abysmal standing within the international community. No one seems to see the equity value in the purge of President Bush and V.P., Cabinet members, Vice and advisers. (Wolfowitz and Rove come to mind). Canada and the USA are each other's largest trading partners, and enjoy(ed) one of the closest bonds between two nations in history. When President Obama refers to all Americans being in this together, it is applicable to foreign citizens as much as it is to Americans themselves. Rebuilding the BRAND EQUITY of the USA, will stimulate a spirit of cooperation among nations, vital to the success of any financial recovery plan, or environmental issue. Canada and the majority of Western nations look upon America and its new administration as the unquestioned leader and keeper of our ideals and defenders of freedom. While the Press is fixated upon the collapse of its financial institutions, it would do well to remember that the new spirit of hope that your new President has brought to the international table is an asset of phenomenal value, little noticed by your news media. In a situation where America needs all the cooperation it can get, do not so badly undervalue the growing resurgence of America's international reputation as the bastion of international Western values. President Obama places all of us on the High Ground of a battle which must be won. "Brand Equity" does not confine itself to tins of Soup. And boy are were in the soup right now. The West now begins to open its doors once again to America. And that, you can take to the bank!

  5. Shareholder | October 5, 2011

    It appears you revere Obama. He's not much of a communicator. He's prickly, late, no new ideas, and his not really getting on well with his party. The Wall Street kid?s? They could make a much better ripple by boycotting Coke or A T and T whilst looking for a real job —

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