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The economic woes that are forcing homeowners into foreclosure, choking spending on nondiscretionary goods and driving up credit card bills may claim another group of victims in the coming years: broke baby boomers.
Consumers 45 years and older are raiding or compromising their 401(k) accounts, shirking monthly payments and skipping regular medications and doctor visits at an alarming rate, according to senior advocacy group AARP.
As many as 25% of Americans 45 to 64 said they are taking these steps to stay financially afloat, the AARP found in a recent study. That will put them at a decided disadvantage when retirement rolls around, particularly if they have subverted their health, and may lead to putting that retirement on hold.
At the same time, Standard & Poor's reports that the average American household savings rate remains at 0%, making it "more difficult for older Americans to finance their retirement."
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"This is a horrific scenario," said Tom Nelson, AARP's chief operating officer. "People are feeling this pinch in the short term . . . but the long-term consequences that are facing these individuals and our economy for years, if not decades, are frightening."
The AARP survey included people 65 and older but found that those who were having the most difficulty adjusting to declining home values and higher prices for food and energy were 45 to 54, followed by those 55 to 64.
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The youngest boomers were having the most problems paying their mortgages or rents. They were also more apt to pull money out of their 401(k) accounts and other investments and change their lifestyles. About 76%, for example, said they are eating out less, and 71% said they are spending less on entertainment.
It's likely, the study said, that the younger respondents are having a tougher time because they still have work and family obligations that place them more at risk during an economic slowdown.
At the same time, many people 65 and older have fewer decisions to make because their spending already has been crimped by their fixed incomes, the study noted.
Grim prospects
If this economic downturn worsens or lingers, Nelson said, the future for the youngest baby boomers could be grim.Nelson painted this picture: A 45-year-old who postpones bill paying, cuts back on necessary medications and stops contributing to his 401(k) is undermining his credit rating, putting his health at risk and losing an economic base. Fast-forward 20 years, and those issues have only gotten worse. Tack on another 20 years, and the situation could be dire.
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Mark Iwry, a senior fellow at the Brookings Institution, said it's hard to catch up on missed 401(k) payments. Not only is the actual payment gone, so, too, is the match by an employer, as well as the growth of the tax-free money. "You've got to put in a larger amount just to replace what you took out earlier," Iwry said.
Making matters worse, he said, people tend to assume they're going to die earlier than they actually do. Many don't plan financially to live until they're 90 because they don't think they'll ever get to be 90.
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