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Thursday, March 17, 2011

Will the Baby Boomers Ever Retire?

I got a copy of On Balance: The Magazine for Wisconsin CPAs in the mail today. An article on today's job market contains the following: "In three to five years, a tremendous number of professionals in accounting, financial services, and government will retire ... That's good news for job seekers ..."

Today is March 17th, 2011. The funny thing is, I've been hearing about mass retirements in the next "three to five years" since the 1990s.

I was talking to my advisor about PhD dissertation topics and suggested that I could research how firms manage the loss of institutional knowledge in the face of mass retirements. Being wiser than me, he shot the idea down. Considering that I finished my dissertation in 1995 (on a totally different topic), I clearly heard about the upcoming wave of retirements a long time ago.

Somehow though, the wave of retirements and the resulting labor shortage hasn't happened. It stays just around the corner. How is this possible? Don't they say "demographics is destiny"?

The problem isn't demographics - it's projecting future trends based on past results.

The oldest Boomers are in their mid-60's today and were in their mid-40's when I first started to hear about the upcoming retirement wave. No one actually thought that Boomers would retire in their mid-40's but they were observing the group just ahead of the Boomers.

It wasn't uncommon for high level executives to retire in their early to mid 50's. After 30+ years of 70+ hour workweeks many of them had made a lot of money and knew that they had hit their personal corporate ceiling. They were never going to be CEO. Their bodies and minds were feeling the effects of 30+ years of stress so they decided to get out and enjoy retirement while they were still able.

Similarly, many civil service employees found that, not only had they peaked in their government organizations, but they had maximized their pensions. While they didn't have the financial resources of the corporate execs, they had a solid pension with health insurance so many of them decided to retire and pursue other interests.

Therefore, it wasn't crazy to think that many of the Boomers would follow the same pattern when they hit their 50's. That wasn't very far away. By 2000, the leading edge of Boomers would be in their mid-50's. The projections seemed to make sense.

Then reality happened. Boomers are the first generation to be heavily invested in 401k retirement plans and the 1999 tech stock crash played havoc with the entire market. Some folks on the verge of retirement decided to hold off a few years to rebuild their portfolios. Based on the last 10 years of stock market performance, some are still waiting.

Another pattern occurred too. Many of the "young" retirees from the early 1990's wanted to go back to work. Perhaps they got bored playing golf after four or five years. Perhaps their investments hadn't done as well as they hoped. Perhaps it was both. Regardless, they wanted at least part of their old work lives back but they couldn't get it. Whether they had grown obsolete or it was age discrimination, most of them were not able to get the kinds of positions they wanted.

The Boomers were watching. The lesson? Be careful about walking away too early because you can't come back.

As a result, the Boomers are holding on to their jobs longer than expected. In my field, college teaching, mandatory retirement ages have largely been eliminated. The Chronicle of Higher Education frequently has articles on conflicts between those seeking college teaching positions and older professors who will not retire. It's not much different in the corporate world.

So what's going to happen? Will there be a "tremendous number" of retirements in "three to five years"? I don't know for sure, but I don't think so. Of course the Boomers will all eventually retire or die but I think they'll go by attrition rather than en masse. Most of the Boomers I know simply do not have the resources to retire any time soon. Some will be forced to retire when their health fails. Others might get a nice inheritance along the way and decide that they finally have the resources to retire. Others will work well into their 60's and even their 70's either because they have to or they just plain want to.

Note: my stories/characters (executives, civil service employees, and Boomers) are blended from multiple individuals I know. However, that makes my analysis anecdotal rather than purely data based (data is not the plural of anecdote). Where and how might you find actual data to support or refute my theory of why the wave of retirements predicted nearly 20 years ago still hasn't happened?


  1. As the 401k plan is becoming the primary source of retirement funding, you could potentially look at the 5-year history of several equity indicators and notice the housing bubble burst in 2008 and a rapid drop in the numbers. The public sector has been shrinking the funding for pension plans. You can compare the number of retirees to the expenses of the Social Security trust fund as the Social Security age and requirements to recieve payments are becoming more stern.

    Finally, looking at the demographics and the value of sold homes. Noticing around 2008 and 2009 a major dip in those numbers, thus a reduction in retirees

  2. I would have to agree with the whole retiring early. My thoughts are that, these baby boomers have been hard workers all their life growing up being a hard worker. That they will not retire until they are able to no longer work physically and mentally. Although I think it also has to do with the economy and how if some people retire, they may be scared to not waking up and doing the same old same old, or even not feeling like they are supporting their family.

  3. Many companies and organizations began implementing 401ks and matching contributions because 401k cost less. Their costs are lower because (i) the employee is the contributor (ii) if the employee leaves the company, the employer has no obligation to continue matching. For the business/organization, 401ks were an obvious choice for cost savings while still offering a retirement account for their employees. People stay longer because if they don't have the 'security' of a pension, if they don't work, there will be no income. Additionally, prices for daily living needs are rising, and it puts pressures to older workers to continue working.