Six Major Drains On Boomers’ Bank Accounts
A report by the National Center for Policy Analysis investigated how much baby boomers are spending on things like education and clothing and how that has changed over the past 20 years.
"For a number of years now, retirement and financial experts have bemoaned the fact that baby boomers and others who should be thinking about retirement saving are nowhere near ready to retire," Pamela Villarreal of NCPA said in the summary of the report. "Some blame the failure of 401(k) and Individual Retirement Account (IRA) retirement plans to fill in the gaps left by elimination of corporate pensions. Others argue that American adults of all ages are simply not saving enough."
The rising cost of education is taking its toll on boomers. From 1990 to 2010, education expenditures jumped 80% for 45 to 54 year olds and 22% for 55 to 64 year olds.
"Thus it is not surprising that a recent analysis by the New York Federal Reserve Bank found that one-third of the nation's student loan debt is held by individuals over the age of 40," Villarreal said.
Some individuals may be carrying debts over while others may be furthering their education later in life. More likely, the report said, is that baby boomers have some of their finances tied up in helping their children pay for their college expenses and deal with loans.
Taking into account both out-of-pocket expenses and insurance premiums, health care expenditures rose 30% for 45 to 54 year olds and 21% for 55 to 64 year olds. Insurance premiums nearly doubled for both age groups.
"This reflects the growth of health care spending, which has essentially wiped out the gains in median family income over the past decade," Villarreal said.
More than half, 59%, of parents who had an 18 to 39 year old son or daughter were spending money to support their adult child. Of that 59% some were paying living expenses (48% of expenditures), transportation costs (41%), spending money (29%), medical bills (28%), and paying back loans (16%).
"Housing, however, is typically the largest monthly consumer expenditure," Villarreal said.
In the last two decades, expenditures on principal, mortgage interest, taxes, maintenance and insurance rose 25%. For those between the ages of 55 and 64, half of the increase was due to rising interest expenditures, the report said, even though mortgage interest rates have fallen over time.
"The portion of income they spend on mortgage interest increased 47%, from 4.3% to 6.3%," Villarreal said.
The report speculates that the increase may be due to the rate at which home prices outpaced growth before the 2008 collapse.
Baby boomers seem to be cutting back on their bills here, according to NCPA:
*Food purchases, including spending at restaurants, fell 18% for 45 to 54 year olds and 20% for 55 to 64 year olds.
*Household furnishings fell nearly one third for 45 to 54 year olds and dropped one-fourth among the 55 to 64 range.
*Clothing expenses fell the most dramatically, down 42% for 45 to 54 year olds and 70% for the 55 to 64 year olds. (NCPA attributes this drop in part to a decrease in labor costs that brought down prices of apparel.)
"Contrary to the belief that the savings rate has been stagnant, or even declined, retirement accounts appear to be playing a larger role for baby boomers," Villarreal said. "However, retirement savings is nowhere near the 10% that is often recommended as the share of income that should be dedicated to savings."
Meanwhile, income median income for 45 to 54 year olds peaked at $74,457 in 1999 and has since fallen to $62,485 (correlated to the 2008 recession).
Income peaked for 45 to 64 year olds at $60,345 in 2007 and has since fallen to $56,575 in 2010.
"This difference is likely due to the fact that 45 to 64 year olds hold more income in stocks; thus stock market volatility has affected their capital gains and dividends, particularly during the 2000s," the report said.