Friday, May 04, 2012

Brace Yourself

Let's connect the dots between unemployment, retirement, and the future of consumer spending.

Unemployment In April, the unemployment rate fell slightly (to 8.1 percent), despite weak job growth (a gain of 115,000 jobs). Unemployment fell because hundreds of thousands of people dropped out of the labor force.

Retirement The labor force is shrinking in part because the large baby-boom generation is beginning to retire en masse. As noted previously in this blog, 45 percent of the oldest boomers (who turned 65 in 2011) are fully retired, according to a MetLife study. Yes, boomers say they are going to postpone retirement, but not for long according to a University of Michigan study. The Michigan study examined how the Great Recession affected the retirement plans of Americans aged 50 or older. The results show that the average household headed by an older American lost 5 percent of its wealth between 2008 and 2009. This should result in an additional 3.7 to 5.0 additional years of work to make up for the loss. Instead, those postponing retirement are planning to work only for an additional 1.6 years, live on less, and leave less for their heirs.

Spending The baby-boom's retirement will dampen consumer spending for years to come and will reduce the wealth of younger generations, who will inherit less.

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