Baby Boomers: Frugal Retirees or Lifetime Workers?

Katie McBeth  | 

Each generation has experienced their own struggles and triumphs with finances.

Many Baby Boomers are currently approaching the typical “retirement age.” Their children are out of the house and in college, their homes are paid off (or will be soon, or they are downgrading), and their careers are winding to a close. Additionally, they are enjoying high credit scores due to their long credit history.

Yet as many Baby Boomers get closer and closer to retirement, many of them are pushing out that retirement year. Their retirement portfolios, as it turns out, are not as big as they had hoped. Some may have had to pull from retirement after the 2008 financial crisis, while others might have chosen poor investments or accrued too much debt. Either way, there is a bit of a Baby Boomer crisis in the working world, simply because they’re still working.

What financial habits have worked for the Baby Boomers, and which have not? The Boomer generation has had plenty of experience in the financial world, so what lessons can we learn from their triumphs and mistakes?  

Longstanding Habits and Bad Turns

Baby Boomers are proud and happy credit card owners. In their early adult years, credit cards were only just starting to appear on the market, and Boomers were happy to jump on board and begin accruing debt. With the addition of a booming and steady market (both in the sense of jobs and housing) this generation came of age in an era of unprecedented growth and high household incomes. The risks posed by accruing debts on new credit cards were far outweighed by the convenience and status they afforded.

Since then, Boomers have continued to cultivate a longstanding history with credit card companies and the credit bureaus. The flourishing financial market of the 80’s and 90’s helped fuel their spending and debt, and their comfortable jobs helped keep them keep their debt payments within their means. However, most of this came crashing down with the financial crisis and stock market crash of 2008.

Suddenly, retirement savings were devastated, jobs were lost, and repaying some of their previous debts were out of reach. Their spending needed to come to a screeching halt if they were going to make it through the crash. Some Boomers had to forfeit their high credit scores and file for bankruptcy, while others turned to more debt to try to offset the sudden loss of income.

For Baby Boomers, it was a devastating blow to many of their plans for retirement. Many people had their entire retirement portfolio disappear in a single day, and the ensuing panic drove them to withdraw all they had left in the stock market. However the market always stabilizes itself, but many Boomers that pulled out of the market at this time subsequently missed out on a growth of interest post-crash, and potentially a healthy retirement.

Plus, many Boomers lost their previously stable jobs. With the crash came the shuttering of many small businesses and larger corporations. Suddenly unemployed, some Boomers pulled from their retirement accounts early, despite the 10 percent “early withdrawal” income tax penalty it would cost them for withdrawing prior to turning 59 years old. It was the only money they had access to while they searched for new work.

For the rare few that kept their job and retirement intact, they most likely were ready and able to retire at 65. As Investopedia wrote on the issue in June, 2017, Baby Boomers were one of the first generations to really show the importance of investing in retirement: “‘This is the first generation to face saving for retirement on their own,’ says Elyse Foster, CFP®, principal, Harbor Financial Group, Inc., Boulder, Colo. ‘I believe early on there was a lack of information on the importance of saving early and often. The assumption seemed to be ‘you are on your own.’” Now with the inevitable end of their career looming, many of them are scrambling to make up for lost time.

According to a study by the Insured Retirement Institute (IRI), very few Boomers made it through the financial crash unscathed. As Time Money wrote, this report found that: “45% of boomers have zero retirement savings … And of those who have saved, only a little more than half have as much as $100,000 stashed away. All of which suggests that few boomers had significant amounts invested in stocks during a record bull market run.”

In the present day, it’s easy to look back at the growth of the stock market since the crash and see it as a missed opportunity for Boomers. However, during the crash, it was a terrifying and stressful time. Their decisions to pull out from the market may have been reactionary, but it unfortunately compounded the losses they suffered to their portfolios. Panic is understandable, but pulling out the money during the crash only resulted in more years spent trying to recover and save up, instead of enjoying their retirement.

Luckily, since then, many of them have been able to keep their credit scores high and their debts in check. According to a 2015 report by Experian that analyzed the scores of every generation, Baby Boomers typically have a score over 700, and only use about 25% of their credit utilization ratio. However, they do also have high standing credit card debt, with an average of over $5,000 in debt on their existing credit cards.  

Of course, a poor retirement portfolio and long credit history is not the only issue facing Baby Boomers as they approach the retirement milestone. Other financial burdens are beginning to pile up.

More Financial Pain Points

Besides lacking a comfortable retirement, Baby Boomers are also facing a health crisis. Many Boomers are contracting chronic illnesses, which is a common occurrence as people age. However, the rising cost of healthcare for themselves is putting pressure on their attempts to save money for retirement. With government provided Medicare also on the potential “chopping block” for funding each Congressional year, health is certainly a major pain point for this aging generation.

As Time Money wrote when covering the IRI study: “A typical healthy 65-year-old couple is likely to spend $245,000 on healthcare in retirement, according to one study. Those costs may rise as you age, with those 85 and older likely to spend one third of their income on medical expenses. This sobering data is on the minds of boomers—among those with a savings goal, two-thirds have factored in future health care costs, the IRI report found.”

Outside of health concerns, Baby Boomers are also facing a unique challenge with their debt. Social Security payments (a government benefit for retired workers) only pays about $1,300 a month on average, and a fixed income from retirement is rarely enough to pay off existing bills and expenses. Their house, for instance, might be completely paid off and many of them might be seeking out a comfortable “downsized” retirement home. However, if their housing mortgage is still substantial, they may be facing an additional hurdle that is prolonging their retirement.

Debt in general can be extremely detrimental to a fixed retirement income. Although it is best to have only minimal debt when approaching retirement, many Boomers are still struggling with an average debt of about $42,000, according to an Experian survey from 2016. However, their long history with the banks and healthy credit decisions have afforded them a traditionally high credit score across the generation. If many of them retire with a high amount of debt, it is possible that the high credit score will plummet if they become delinquent on debt payments.

Lessons to Learn

Time will tell how the Baby Boomer generation fares in their retirement. It is possible that many of them will rely on the financial help of their children; an interesting role reversal. No matter what happens, this generation can teach us an important lesson about the impact our retirement portfolio can have on our lives. Without investing early and often, future generations could face a similar retirement crisis.

However, Baby Boomers can also teach us the importance of building and maintaining a high credit score. Despite the downfall of the economy during the 2008 crash, Boomers were still able to maintain fairly high and even excellent credit ratings due to their longstanding history with the credit bureaus and reliance on building debt. It has helped them gain homes, access to high-spending credit cards, and many other services that are not open to those with a lower score. The Boomer generation provides us with a long term case study of the importance of maintaining healthy credit habits.

The Baby Boomers provide a unique perspective to finances, and have certainly experienced all the ups and downs of the financial market. Hopefully with time, they will find the support they need to feel comfortable in retirement, and other generations will be able to learn from their experiences. Building strong credit and investing for retirement take the same key skill: patience. Negative items on a credit history remain there for 7-10 years; likewise, market crashes and recessions can take several years to recover. In both cases, the slow and steady approach — with discipline and patience — can reward those who keep their habits and spending in check.


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Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth

This post was updated July 11, 2017. It was originally published June 23, 2017.