Financial Woes Force Boomers to Work Longer. That's Good

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The latest victim of the financial crisis: baby boomers' retirement. With plunging stock values and tanking home prices, an increasing number of boomers approaching retirement age are postponing travel plans and staying on the job longer. According to a study in October by AARP, 65% of people over the age of 45 say they will delay retirement if the economic situation doesn't improve significantly. Since that survey was published, stocks have sunk lower and the economy has formally entered into recession.

But don't expect a federal bailout of boomers, because delayed retirement is seen as a good thing by many policy analysts. "If people continue to work between two and four years longer, they will be better off financially and as a country we will be better of fiscally," says Marc Freedman, CEO of Civic Ventures, a think tank focused on aging. A November study from the McKinsey Global Institute (MGI) titled "Why Baby Boomers Will Need to Work Longer" finds that having a workforce that continues a few years beyond the traditional retirement age is the only way for boomers to prevent a decline in their standard of living and not drag down U.S. economic growth. The report estimates that a two-year increase in the median retirement age — from 62.6 to 64.1 over the next decade — would add nearly $13 trillion to real U.S. GDP during the next 30 years while reducing by half the number of boomers who would find themselves without enough money for retirement. Two-thirds of older boomers have not prepared sufficiently for their golden years, and many don't even realize it, according to the report. (Find out 10 things to do with your money.)

It's a surprising figure, since the 79 million people in the baby-boomer age bracket enjoyed more economic success than any other generation in U.S. history. Their sheer size, along with their higher educational attainments and output levels, drove exceptional income growth, though these big spenders weren't big savers. The generations that have followed represent a smaller share of the overall population. Thus as boomers age, the overall workforce will shrink. "Without an unexpected burst of productivity growth or a significant upsurge in investment per worker, the aging boomers' reduced levels of working and spending will slow the real growth of the U.S. GDP from an average of 3.2% a year since 1965 to about 2.4% over the next three decades," says the MGI report. That growth rate is 25% lower than the one we've been accustomed to.

"We have a huge group of retiring baby boomers and not enough replacement workers," says Joan Carter of the Life Options Institute, an organization dedicated to helping people plan for life after age 50. The Department of Labor projects a labor shortage by the year 2010, with fields like education, health care, engineering and nursing set to suffer from a scarcity of workers. In a way, it's two negatives — boomer financial woes and a coming labor shortage — adding up to a positive, which is more boomers continuing to work and shoring up their savings. It could lead to a happy ending — even if a lot of boomers won't be smiling.

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