Tags: Baby | Boomer | Spending | Cutback | Economy

Baby Boomer Spending Cutback Threatens Economy

Thursday, 19 Aug 2010 09:41 AM

Baby boomers, hard hit by the credit crisis that significantly reduced the value of their homes and portfolios, now have less money, earn less on what they have and are facing few opportunities to grow their finances in today’s poor job market.

No wonder their reduced spending threatens the consumer-driven U.S. economy.

"We will have to learn to make do with a lot less in material things," Gary Snodgrass, a 63-year-old healthcare consultant tells The Wall Street Journal, noting that the crisis reduced his retirement savings by 40 percent and cut the value of his home by about half.

Banks and bond issuers benefit from short-term interest rates that hover near zero, but baby boomers do not, because low bond yields and an uncertain stock market mean that some 59 percent of them won’t have enough money for their basic needs in retirement.

Moreover, low rates mean that those who have moved their investments into annuities and bonds will suffer from the results of their own caution, receiving about 2.4 percent as opposed to expected stock market returns of about 6 percent.

"If these rates stay as low as they are, then a lot more people are going to be hurting," says Jack Van Derhei, research director at the Employee Benefit Research Institute, a nonpartisan group that estimates almost three in five baby boomers may run short of basic retirement funds.

"There are going to be many luxury items that will simply have to be eliminated," for retirees to make ends meet.

Reuters reports that the yield on U.S. 30-year Treasury bonds fell to its lowest level in 16 months as inflation fears ebbed in the wake of recent weak economic data.

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