Baby Boomer Bust?: How the Generation of Promise Became the Generation of Panic

By Roger Chiocchi

“A lucid and vivid account of the combined flawed social policies and ingrained corporate attitudes that have brought the US economy to its knees.” —Dr. Ronald Manheimer, former executive director, North Carolina Center for Creative Retirement
 
Baby Boomer Bust? examines and analyzes the meltdown of 2008/2009 from economic, political, and social perspectives and illuminates how the meltdown has directly impacted Baby Boomers—once known as the generation of promise, but now the generation of panic. It examines the downturn’s impact on Boomers’ lifestyles, dreams, aspirations, and future plans. Baby Boomer Bust? raises some provocative questions regarding the generations ability to survive the worst economic downturn since the Great Depression
 
“A revealing insight into the effects of the recent economic downturn on the very generation that helped to create one of the world’s most powerful and influential economies. Mr. Chiocchi’s examination brings into sharp relief some of the more salient, and subtle, social-consequences of one of the greatest economic disasters in the history of Western civilization.” —Michael J. Formica, MS, MA, EdM, psychotherapist, social scientist
 
“A sobering view of the underside of the economic meltdown.” —Jerry Shereshewsky, CEO, Grandparents.com

• Language: English
• Publisher: Open Road Integrated Media
• Release date: Apr 15, 2010
• ISBN: 9781614480037

Roger Chiocchi

One eerie night in the mid-1980s, Roger Chiocchi awakened with a strange feeling of paralysis. Out of the corner of his eye, he thought he saw a figure of a person moving across the room. The incident rekindled his fascination with ghost stories and ultimately led to his writing Mean Spirits.

Book preview

PART I

The Perfect Storm

Introduction

Wipeout

We’ve all seen the commercial. Dennis Hopper, an icon of the Easy Rider days of the 1960s, a poster boy for the love generation, a.k.a. the Baby Boomers (although not technically one himself), is standing on a beautiful beach with calming azure blue water, warm soothing sands, white puffy clouds and a hint of an inviting, uninhabited island on the horizon. He’s wearing a black collared shirt, a pair of ultra-cool, but understated, shades and sports a small salt-and-pepper goatee. Holding an old tattered dictionary, he reads the definition of the word Retire: to withdraw, go away, disappear. Then in his inimitable, sort of aloof, but rebellious tone of voice, he announces, Time to redefine.

He drops the dictionary on the beach and the music begins.

Bah-dah-dah-dah-dah-Bump. Bah-dah-dah-dah-dah-Bump.

With the opening chords to Gimme Some Lovin’ by the Spencer Davis group—classic 1960s rock—pulsating underneath, Hopper goes on to tell us that, Your generation is definitely not headed for Bingo night. In fact you can write a book about how you’re going to turn retirement upside down.

In an odd sort of way, this is that book.

Unfortunately, it’s not about turning retirement upside down in quite the way that Hopper and Ameriprise, the sponsor of the ad, envisioned. We’re going to turn it upside down because most of us are pulling the collective hairs out of our heads in a state of outright panic and shock.

I wrote this book because, as a Boomer in his mid-50s, I thought I was reasonably well set for the future. I had enjoyed a successful career as a senior executive on Madison Avenue and as President of a medium-sized advertising agency in the East Village before I started my own small agency in Connecticut, where I could do my own thing and pursue my passion for writing (mostly fiction). Then, suddenly, the meltdown strikes and all my assets are cut in half. It forced me—and most of us Baby Boomers—to re-evaluate our preparedness for what lies ahead. We became disoriented because of the gap between our previous expectations and this new reality. Baby Boomer Bust? is all about the chasm between our generation’s lofty expectations and that sobering reality that confronts us as we approach our 50s and 60s.

My purpose is to examine this chasm—this gap—to try to explain why it exists. Is it that our expectations were set much too high? Were our accomplishments much too modest? As a generation, did we allow the relationships between government, business and civility to get out of whack? Was the economic downturn of 2008/2009 the cause of our downfall, the effect of our downfall or merely a punctuation mark, wickedly accenting the failures of a generation?

Baby Boomer Bust? will examine this phenomenon from several perspectives. First, I’ll present the findings of a panel of more than 150 Baby Boomers who we queried via an online survey. These respondents tell us how the downturn affected their lives, their consumption patterns, and their abilities to provide for their family’s housing, their children’s education and their own retirements. They’ll tell us who they think is to blame for our current economic malaise and how it’s affecting their political leanings. Finally, they’ll tell us what they think the future has in store for us.

Next, the book will explain the causes underlying our economic state. Whether the downturn of 2008/2009 is, indeed, a cause, an effect or a punctuation mark, you’ll find that the story is convoluted, complex and built on a foundation of greed.

Then the book will focus in even more. First, on five groups of individuals who responded to the survey in a like manner. Each group has its own set of quirks, although they all have a few things in common—mostly anger at the system, however they define it, and uncertainty about the future.

At that point, we’ll zoom in even closer, profiling eight individual Baby Boomers/families—their lives, experiences, careers, successes, failures, current economic status, views on the future and, most critically, how they are coping.

I’ll share the stories of:

• Dick Shaughnessy. A telecommunications manager at Citigroup, he saw his 401K decrease by almost 70% as Citigroup stock nosedived from $50 to $2. Then to add insult to injury, he was laid off in October 2008.

• Donna Dellasandro. Once a relatively wealthy resident in one of the most affluent communities in America, she still lives there, but now is struggling to make ends meet.

• Kurt Simpson. A senior level marketing executive who, due to several extended hiatuses between jobs and multiple relocations, is virtually penniless although gainfully employed.

• Ian Stein. A successful broadcast journalist who’s now living his dream of producing documentaries. It’s a dream he’s earned, but one that may be cut short by the failures of others.

• John Perrotti. Once a partner in a Wall Street trading firm who earned a high six-figure salary, today he’s tending bar in a trendy Connecticut bistro.

• John and Georgia Albee. This New Jersey couple worked hard for 30 years to build a successful auto dealership and came within inches of losing it all because of the economic downturn’s effect on Chrysler.

• Dan Besso. A retired police officer who has parlayed his pension and a small alarm company business into a decent life for himself and his family

• Scott Divak. An advertising copywriter who has been laid off time and time again, but who always finds the resiliency to come back.

I’ve changed the names—but not the stories—of these people because the intent of this book is not to exploit our subjects but rather to use their stories to illustrate the impact of the economic downturn on their lives as well as the key issues facing the Baby Boomer generation going forward.

Finally, in the last three chapters, I’ll try to make sense of it all. I’ve interviewed experts on personal bankruptcy, retirement and psychology/sociology and cite other authoritative figures in an effort to provide perspective and, hopefully, some solutions.

But let’s start at the beginning, the gap between what we expected and what we might end up with.

Chapter 1

The Expectation Gap

Most of our parents had pensions, Social Security and the value of their homes to fund their retirements, creating a certain expectation in their children that our post-career lives would be somewhat comfortable as well. Unfortunately, our generation generally doesn’t have pensions or defined-benefit retirement plans as formally defined (unless perhaps if you’re a union worker or public employee), we’ve seen the value of our homes diminish, and even if Social Security—a sort of transfer payment from the next generation to ours—is still around when we need it, the maximum payment (currently about $3,000 per month) doesn’t really excite anyone. Oh, yeah, and one other thing: Our cherished 401Ks and IRAs have tanked.

My colleagues and I conducted a survey of a broad spectrum of Baby Boomers in Spring 2009—when the effects of the economic downturn of 2008/2009 settled in, after the initial shock and numbing period of late 2008/early 2009. Because the online sample was not random, the results are not projectable to the entire population, but nonetheless, they provide us with a broad-scale qualitative snapshot of the feelings, behavior and the adjustments Baby Boomers made as a result of the downturn. (If anything, our panel was more upscale than the population at large, thereby giving us a good acid test of the impact of the recession.)

We asked our online panel many questions, but one of the most important was, How do you plan to pay for your retirement?

The sassiest answer? The Lottery

And what about housing? Our parents’ generation practically went to the bank on the appreciation in the value of their homes. Could the Baby Boomers ride that escalator as well?

The bad news: Almost half of the people we talked to estimated that the value of their homes declined by 10% to 30% in the last 12 months.

The good news: Almost 60% of the Baby Boomers we talked to own their homes and think they will be fine in terms of being able to make their mortgage payments going forward. Surprisingly, only about 8% fear that their houses are under water, meaning that the value of their home is less than the balance owed on their mortgage.

So with cautious optimism, it looks as if Baby Boomers will get some return on their housing investment. Of course, that’s all dependent on the housing market coming back in future years, what they actually paid for their house and how long they’ve held it, how many refinancings they have been forced—or will be forced—to do, and, of course, their employment now and in the future.

As one Baby Boomer told us, despite the fact that their loan-to-value ratio is only at about 20%, it’s all dependent upon staying employed. Another added, the answer is based on the condition of my husband’s employment. With difficulty I could maintain my home with my present salary, but any cost increases would force me to sell it or find a second job.

And now for the coup de grace. We invested in a magical panacea called a 401K, which was designed to incent savings that would accumulate tax-free over the years and ride the never-ending rise of the stock market; at a mere 6% or 7% a year, our financial advisors told us, the cumulative value of what we stashed away would double every 10 to 12 years.

Mesmerized, we ogled at the spreadsheets. Jesus Christ, honey! In 2020, our 401K will be worth $3 million. Maybe we should start looking for that little shingle-style bungalow with a water view on Nantucket.

Emboldened by a 14,000 Dow in 2007, we upped the ante. Geez, maybe that little bungalow should become a 5,000-square-foot waterfront McMansion.

Then the bottom fell out.

The 14,000 Dow from 2007 became the 6,700 Dow in March 2009. Down more than 50%, which of course means that the Dow will have to increase by more than 100% just to get back to where it was in 2007.

Instead of that waterfront McMansion on Nantucket, we may have to settle for a modest retirement village in Nanuet.

Without doubt, the economic downturn of 2008/2009 has wreaked havoc on the lives, dreams, aspirations, consumption habits and net worths of our cherished Baby Boomer generation. We found a number of interesting and sometimes frightening themes in our survey of this vaunted generation.

Let’s start by tackling the veritable 800-pound gorilla in the room—retirement.

A Less Than Idyllic Retirement

More than 30% of the Baby Boomers we talked to told us, Frankly, I don’t think I’ll ever be able to retire. About 43% of them thought they were okay before the current economic downturn but now doubt their ability to retire based upon the current value of their assets.

A prevailing thought was expressed by one of our respondents: The idea of retirement has become further and further away for the average and below-average citizens in this country. And another told us: I will not be able to retire and maintain my present lifestyle.

According to Dr. Ronald Manheimer, former Executive Director of the NC Center for Creative Retirement at UNC Asheville, There are several studies and surveys out there done by academic researchers and financial services companies that paint a dire picture of Boomers’ ability to retire soon or ever. In the aggregate this is probably true though most will eventually retire either because they want to or have to. They will simply adjust . . . not painlessly, but resignedly. People will have to sell their homes and move into apartments or low-cost condos. They will have to find satisfaction and meaning in their later years through other means than greater wealth would have allowed.

Okay? So how bad is it really?

We asked our panel of Baby Boomers how they planned to fund their retirements. The leading sources were 401Ks (63%), Social Security (61%) Personal Wealth (41%, but that number is somewhat redundant with 401K and housing), and Sale of Existing Residence (35%). Only 28% mentioned that they had some sort of pension.

So exactly how adequate—or not—are these resources to fund a decent retirement?

I decided to address the point head-on by performing a simple analysis. Since our Boomers told us that Social Security, their 401Ks and selling their existing residences were their primary retirement funding vehicles, we took the average value of these assets across the U.S. and uncovered some interesting findings.

Let’s say a Baby Boomer is 53 today—right smack in the middle of the Baby Boomer Bubble. Here’s what they’re looking at in terms of a monthly budget if they choose to retire at 62, 65 or 67. I performed the analysis under two different scenarios: a) selling their primary residence and b) keeping their primary residence.

This analysis was based upon a current 53-year-old having an average household 401K or IRA balance of $100K (which is generous; the Center for Retirement Research at Boston College estimates that the average family approaches retirement with only $60K in retirement savings), the national average current home value of $180,100 and a national average mortgage balance of $108,658. I allowed for an initial 15% bump in 2010 in home and 401K values (to allow for an initial recovery) and 6% a year thereafter. I also anticipated each household saving an additional $3K per year through retirement age and collecting the current maximum Social Security benefits (single wage earner household with benefits for non-working spouse) for their retirement age unadjusted for future Cost Of Living Adjustments. The total net worths (assuming both with and without the sale of their primary residence) were annuitized through age 87 at 6% annual growth. Finally, I assumed 25% for taxes and Medicare and/or health insurance. (NOTE: for age 65, the Full Retirement Age of 66 years and 2 months was utilized for the calculation of Social Security benefits).

The monthly budget numbers aren’t draconian by any means—particularly in some regions of the country—but they are, by most standards, modest. So for most Baby Boomers the dream of retirement as that frolic on the beach with Dennis Hopper is exactly that—a dream.

No wonder 17% of Baby Boomers told us, I plan to work until I drop because I have to.

So here’s the retirement conundrum. Based on national averages, the monthly retirement budget predictably increases as you defer retirement. However, this implies that you have the ability to defer retirement, in other words, you manage to keep yourself employed, not an easy trick in today’s economy.

But, if a large number of Boomers are lucky and manage to remain employed to 67—or even older—this could create a logjam at the entry level of the employment base, which, of course, would mean fewer people from subsequent generations contributing to the Social Security Trust. On the other hand, if a Boomer is laid off, he/she would be forced to dip into what otherwise would be their retirement savings to fund their living situation today. And, if they have children of college age? WHAM! BAM! ZONK!

Social Insecurity?

When we asked our Boomers about Social Security, one of them answered: It’s the largest Ponzi scheme going.

An interesting, although not completely accurate, analogy.

Ponzi schemes work as long as the base of the pyramid is wider than the peak. Frighteningly, the generation behind ours—the ones who will fund our Social Security payments—is smaller in number than our generation. So if Social Security is, indeed, a Ponzi scheme, we’re in a lot of trouble. (In effect, we’d be being Bernie Madoffed by the U.S. government.)

Indeed, Social Security is probably one of the most misunderstood, if not anxiety-inducing, institutions in modern America. Is it a trust fund with our contributions stashed away in some mythical bank for us to collect when our time comes? Is it a transfer payment from one generation to another? Is it some sort of increasingly insolvent bubble that will one day burst just like the Tech Bubble of the 1990s and the Sub-Prime Mortgage Bubble of today? Or is it, indeed, the world’s largest Ponzi scheme?

It seems as if most of us either don’t really know, don’t want to know or are just writing it off. As one Boomer put it, I’m not counting on Social Security being around by the time I’m eligible to collect.

So what’s the reality? Will Social Security be around for us Boomers to collect?

The news is really not so bleak. Social Security is both a transfer payment and a trust. As currently designed, the payroll tax of 12.4% (shared equally by employees and employers) more than covers the benefits doled out to retirees. The surplus is then put into a trust fund that is invested in government bonds.

So far, so good, right?

But here’s the kicker. In the year 2017, projected total benefits paid will be in excess of payroll taxes collected. So Social Security will have to start supplementing the taxes with interest earned on the bonds