Lost equity puts boomers' future in doubt

Baby boomers -- the largest, healthiest and wealthiest group ever appearing on the U. S. growth landscape -- never met a loan they didn't like. After leveraging appreciation and location in their starter and move-up homes to pay for cars, college tuitions and trips, their home probably holds most of the equity in their lives.

According to a new report by Washington, D.C.-based Center for Economic and Policy Research (CEPR), that home is not worth what it used to be. Coupled with the recent turmoil in the stock market, many boomers will be completely reliant on Social Security and Medicare to support them in their retirement years.

"The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners," said report co-author Dean Baker.

The study, "The Wealth of the Baby Boom Cohorts after the Collapse of the Housing Bubble," analyzed the wealth holdings of families headed by people ages 45 to 54 and 55 to 64 in 2004 and projected their wealth in 2009. The findings are presented by income category under three scenarios: house prices remain at November 2008 levels (the latest data available); house prices fall by 5 percent from November levels; or house prices fall by 15 percent. In all three scenarios, the vast majority of these families will lose a substantial portion of their net wealth in 2009. Hence, the report affirms the need to protect programs such as Social Security and Medicare.

The CEPR analysis counters a 2004 economic study prepared by The Urban Institute for AARP in which authors Barbara Butrica and Cori Uccello stated that boomers will amass more wealth in real terms at retirement than will the two previous generations. Median household wealth at age 67 will grow from $448,000 among current retirees to $600,000 among boomers.

However, other researchers, including Larry Cohen, director of Princeton, N.J.-based Consumer Financial Decisions, wonder if boomers, given their spending history, will ever get to the traditional retirement years with any real assets.

"As the cohort responsible for the explosion of credit use in the 1980s and 1990s, boomers are hardly likely to forgo immediate gratification in their later years," Cohen said. ...CONTINUED

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