Are Baby Boomers Unlucky, Moneywise?

We boomers had all last week (the anniversary of Woodstock) to remind ourselves how lucky we were to have come of age during the era of sex, drugs and rock n roll. Now that our nostalgia-induced buzz has faded, though, it's back to reality: recession, swollen college bills, blasted home values and shriveled 401(k)s-and reflections on how unlucky we've been, moneywise, ever since Woodstock.

How unlucky? If you were born in the 1950s, as most boomers were, you entered financial adulthood in the 1980s. Which means you started saving just in time to catch the greatest bull market of the 20th century-except you had no money to take part. You reached your peak earning and saving years just as the fin de siècle bull tipped over into two successive world-class bear markets. As Generation X might put it, our timing sucked. And this T. Rowe Price study shows the consequences.

The chart shows how much money a typical saver would have at the end of two 20-year periods, a bearish decade followed by a bullish one, and vice versa. Then it reverses the decades to make this point: It's far better to have a bear occur early in your career, when less money is at stake. And you want any bull markets to come toward the end of your career.

source: T. Rowe Price Associates
In other words, we boomers got our timing precisely wrong. The T. Rowe study goes on to show what would have happened to two otherwise identical workers, one of who started investing in 1970 (the boomers' twin older sibling) and the other in 1980 (the boomer). While the older worker lost money early on, he or she caught the wave of the 1980s and 1990s bull markets and exited at just the right time in 2000. As a result, the hypothetical 1970s saver would have retired with $1.7 million. For the typical boomer, on the other hand, the tally at retirement comes to a mere $400,000. Remember, this is the same person, same lifetime salary, same amount of savings-but they're separated at retirement by a more than four-fold difference in wealth just because of when they were born.

When I noted this inequity to John Ameriks, the head of Vanguard's Investment Counseling and Research think tank, he pointed out that trying to gauge a generation's lifelong "luck" at any moment in the financial cycle starts you down a pretty slippery philosophical slope. Boomers have done poorly in the financial cycle lottery, to be sure, but we've had our compensations (even without counting the sex, drugs and rock n roll):

The bottom line: More than you like to think, financial success is due to forces beyond your control, such as when in your life the financial cycles play out. All you can do is focus on what you can control-save as much as you possibly can, stay out of debt, diversify widely, protect yourself with life and disability insurance, and nurture your human capital. As for the misfortune of having reached your peak earning years just at the beginning of the Great Recession, boomer, there's only one thing to do. In the words of retirement expert Alicia Munnell: "Suck it up."
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