Bank of America (NYSE:BAC) economist Ethan Harris said in a Bloomberg Radio interview today that baby boomers will probably have to wait longer for retirement and work longer because of the financial crisis and its effect on their personal wealth.
The major part of their portfolios hit hardest were lower stock prices and the drop in value of their homes.
Harris said, “This shock to the markets comes at a very tough time for the baby boom generation as they approach retirement. A lot of boomers are going to end up working a little longer than they thought they would.”
For me, I don’t see the value of the home extending the working life of a baby boomer.
While the reality of stocks losing their value is obvious, my other question is how many baby boomers close to retirement have their portfolios weighted strongly in stocks? Why would they?
Almost all investment advisers urge their clients to lower their positions in stocks as they get older so this very situation won’t hurt them.
As far as a home goes, if someone was planning on refinancing it at retirement and then selling it to use the proceeds for retirement purposes that would make sense, although I’m still not convinced that would necessarily require them to work longer. I do see how it could make someone stay in a house longer than they wanted to if the value plummeted too much.
Where the home becomes an issue isn’t in the loss of value per se, but for those who used it as a piggy bank and owe more money on it than it may be worth, which will force them to work to pay it down until they can at least sell it at cost.
Of course I agree with Harris if baby boomers indeed have kept their capital weighted too much in stocks, as that will have devastated their personal wealth and it would force them to continue working longer in that case.
For those who used their homes as a bank rather than a place to live and kept their money in the stock market at a larger percentage then advised, it will definitely extend their working years beyond what they had expected.
