What YOU Can Learn from Baby-Boomer Blunders

If you know someone in their fifties, don't be surprised when you discover they're afraid. I'm 52, and I checked with everyone. They confirmed it. It's true.

Ten years ago, all of our investments were booming: real estate, the stock market, you name it. It looked like we were headed toward retirement heaven. And we had no qualms about spending money we didn't have.

Now, of course, we're in trouble.

    • The equity in our homes has melted away. Even if we were responsible and didn't take out home equity lines to pay for trips to the Bahamas and Bahrain, the slide in values has erased a good chunk — if not all — of our equity.

 

    • Retirement accounts have been shredded twice over the last decade. We're lucky if we have what we started with ten years ago.

 

    • Our kids are moving back in with us. Need I say more?

 

    • We're older. Besides the obvious depression associated with that, we now have less time to make up for all the money we no longer have.

 

    • Inflation is just around the bend. How are we ever going to be able to pay for those lattes at Starbucks?

 

  • Our dreams are now nightmares. We struggle with our money and our marriages. We had plans of early retirement, extended visits to Maui, and long walks along the River Seine. Now, we're looking at working until we can't, even if it means punching receipts at the Costco and moving to Barstow.

Nothing about this is news to you of course. What might be important, however, is to consider this a “teachable moment”, especially if you're now in your thirties or forties.

I can tell you that when we were in our thirties and forties, we didn't look to the people 10 to 20 years our senior to try to learn from their mistakes. Don't make that same error.

Specifically, here are the four most important take-aways:

    1. Don't assume your home is going to fund your retirement. It won't. You have to live somewhere, and your equity may not be as great as you project. If I'm wrong….you won't complain about it. But if I'm right and you ignore this warning, you'll be licking your wounds all the way to Costco.

 

    1. Try like hell to pay off your mortgage by the time you're 55. It may not be possible, but try. If nothing else, it's a way to force yourself to save. You'll thank me for it later.

 

    1. Don't send your kids to schools you can't afford. Never take on debt to finance Junior's college or even high school. Don't count your chickens before they are hatched like we did. We assumed that our investments and earnings would continue to grow so we thought it wouldn't be a problem to spend that money. We learned how wrong we were.

 

  1. Think about saving as any other expense. Determine how much you need to save monthly and then do it before you spend a dime on anything else. It can't be an afterthought. Don't have the mindset of savings “whatever's left over” because there won't be anything left over.

I'm not wringing my hands, and I'm not trying to criticize you young pups. I think the recent economic turmoil is a fantastic opportunity for everyone to really “wake up”, take notice of what's working and what isn't, and then do things a little differently.

I'm astounded when I come to work and see people 20 or 30 years my junior who still don't get this message. I know I'm looking at people who are a bit further down the road to try to learn from them. I don't think it's too late. How about you? Have you changed your financial behavior as a result of what you've seen others go through?

Previously at Get Rich Slowly, Neal has written about finding financial serenity, how to read a mutual fund prospectus, the benefits of starting a side business, and peer pressure and money.

More about...Planning, Retirement

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Mike Piper
Mike Piper
10 years ago

Have you changed your financial behavior as a result of what you’ve seen others go through?

Yep! I’ve started talking to practically everybody I know (especially baby boomer parents, aunts, uncles, etc) about why it might make sense to annuitize a part of their portfolio.

As for me personally, it’s still just dollar cost average into low-cost funds. 🙂 (The accumulation stage is the easy part.)

Travis
Travis
10 years ago

It has amazed me the mistakes that the people my age (30’s) are making with their future. One of my friends sold her mutual fund (retirement savings) when the market was at its low. She couldn’t bare to lose anymore money – but she couldn’t understand that until she sold, she hadn’t lost any money. Instead of using the time to let it rebound, she sold. I know several people in my age group that won’t buy stocks, using the excuse, they’re so low right now. But they can’t seem to understand, buying low is kind of the point. Thanks… Read more »

lostAnnfound
lostAnnfound
10 years ago

“Have you changed your financial behavior as a result of what you’ve seen others go through?” Without a doubt. We thought we had all the time in the world to save for retirement, but now I’m looking at 50 in one year and there is next to nothing, plus a whole pile of debt. We have had a major wake-up call these past couple years. I’m just sorry it took us so long to realize that. We’re working hard to pay off debt and we’re saving some, too. We have had some very open discussions about our finances for the… Read more »

Adam | FunWithSon.com
Adam | FunWithSon.com
10 years ago

Great post Neal. I want to thank you for offering the advice as many people (myself included) won’t typically seek it out. With regards to your four important take-aways, here’s my status: 1. Home funding retirement – I never even considered it as a source of retirement income. I only expect it to be paid off so we have no expense for shelter. 2. Pay off mortgage by 55 – I’m shooting for paying it off by my son’s high school graduation. That would put me at age 47 and gives me about 7.5 years. I have to say, that… Read more »

TosaJen
TosaJen
10 years ago

Interesting article. As an early Xer, I’ve always tried to take advantage of the victories and smarts of the Boomers, while avoiding their mistakes. I can add to your list: — When you have it, save it. Don’t assume that you’ll always be able to make more money than you do right now. Beyond a certain age, when Boomers lose their jobs, it takes longer to find the next job, and that job is usually not as good as the one they lost. — The economy is cyclical. It goes up, it goes down. Be ready. (I well remember the… Read more »

Writer's Coin
Writer's Coin
10 years ago

I’ve seen this kind of advice a lot in all the parenting books I’m reading since we found out we’re having a baby. And it all makes so much sense. I “get it” that we shouldn’t overspend on things for our child.

But I wonder if all that reason and wisdom will go out the window once the baby is actually born.

I hope not!

Raghubilhana
Raghubilhana
10 years ago

The stock market usually returned around 10.5% average since 1800. If you take any consecutive 25 year period, the nominal returns were 10.5% on average for any 25 year period. People who were in their primes(in their 30’s and 40’s) during 80’s and 90’s when the stock market was booming returning averages of 17%, should have observed this. House prices usually only increase at the rate of inflation and not by 2-3 times in a few couple of years. There is always something that will happen called “reverting back to mean”. Stock markets can never return 17% averages during extended… Read more »

Joseph | kickdebtoff
Joseph | kickdebtoff
10 years ago

Great advice!
I am always thinking about how to prepare for retirement bearing in mind all the variables that will be in play – like inflation and the cost of living.

#6 you have a great point.. we are also preparing to start a family and we have had this talk with our friends who harecently had newborns … and once the baby comes, the advice seem to just escape from the window.. and they go into a spending spree for the baby.

Julie Sibert
Julie Sibert
10 years ago

Tremendous post Neal. Thank you for your honesty! I am 40 and my husband is 44. We owe about $25,000 on our house, so we are on good track there. Only other debt we have is $7000 car loan. We continue to try to find ways to live below our means, but I admit…it is hard. I think an important point is that if you can’t decrease expenses any more, the other option is to increase income (or a combination thereof). I’m trying with a home-based business as a speaker and writer. I’m optimistic, but as we get older, I… Read more »

Fish Finder
Fish Finder
10 years ago

Amen Brother!

Donna
Donna
10 years ago

Thank you for this post. It is so refreshing to see a Boomer espousing this approach. It’s been very difficult for us to fend off our 50-60ish relatives who still try to tell us we should look at our small home as a “starter” and warn us of the dangers of losing the tax deduction of the mortgage we are in line to pay off well before retirement.

The Beagle
The Beagle
10 years ago

Absolutely. I have learned that the Boomers are a “sunshine generation” that is dangerous to emulate. They threw rocks in ’68, then went into jobs with lifetime pensions, and spent accordingly. Here is what I learned: I don’t need a big house. I will take my small place and pay it off by the time I’m 35. I’m not going to work more just to buy a place that will require more work to clean. I don’t need a car. Yes, “how can you bike, it’s not safe, all the other bad drivers on the road…” Blah, blah, blah. Whatever.… Read more »

Bananen
Bananen
10 years ago

– Don’t trust Keynesian economists who claim that taxes will make you richer

Stephan
Stephan
10 years ago

thanks for pointing out the obvious that the young in todays america are not planning for their retirement like they should. i really do hope that everyone learned from the past decade. If we didnt, every generation will have people not prepared to retire and stuck working until they drop

Preferred Financial Services

Sarah
Sarah
10 years ago

Great post. I’d also add keep moving. As a 50 year old, I walk, bike and do excercises at home. All for Free! Oh and of course, Stop Smoking if you do. I think its easier to focus on your finances when you feel well. Plus the medical costs add up. Take good care of your phyical well being as well as your money!

KC
KC
10 years ago

4 great pieces of advice. I’ve often wondered why people view their primary homes as an investment. Typically homes increase in values 1.5-2% a year. If my investments only 2% a year…I’m finding a better investment. Your home is a place to live and is full of intangibles like neighborhood, school district, size, etc. It is not an investment. Don’t send your kids to expensive schools. The point here is not to avoid the expensive school if it’s the best choice for your kid – but don’t forsake your retirement to pay for it. You can help but a good… Read more »

Meredith
Meredith
10 years ago

“Don’t take on debt to send Junior to college.”

Oh really? And how exactly are we supposed to pay for it otherwise?

Or is the story supposed to be, “Sorry Junior, we can pay for community college right out of pocket, but if you want to go to the best school that will have you, pay for it yourself?”

Come on, federal student loans are the best loan value out there. Not taking advantage of them doesn’t make any sense to me, and seems spiteful to your children.

Paul in cAshburn
Paul in cAshburn
8 years ago
Reply to  Meredith

Junior takes out the loan, not you.

partgypsy
partgypsy
10 years ago

Great Advice. I’m going to try to do all these things.

In answer to last question: yes, my parents.

Shane
Shane
10 years ago

I definitely took from my dad’s generation as a model of not what to do with finances, he’s 55, I’m 23. I bought a house and will have it paid off at the latest by 37, shooting for under 30, I bought well within my means. Also, home equity is a useless number unless you are actually going to sell the house, which most people don’t realize. Owning a property becomes most powerful when you own it in full. Hold on and never sell it, pass it down the family. I’ve also focused very highly on retirement savings starting at… Read more »

Daniel
Daniel
10 years ago

This post is awful. The author has an inflated view of what retirement should be. Sorry you won’t be able to retire early and take extended trips to Maui. Scale back retirement, work til normal retirement age and save all you can. Also most people reading this blog are already saving, paying off debt early, not counting on home equity for retirement. Thanks for reaffirming what I’m already doing but unfortunately it probably won’t reach the right people. And Meredith, yes you are supposed to tell Junior that you can’t afford to send them to college if that is the… Read more »

Cara
Cara
10 years ago

@Meredith (#13): Hey, that’s what my parents said to me, and even though I was VERY disappointed, I don’t consider it spiteful :shrug:. They had zero money saved for college, so I ended up going to a second-tier commuter school, which gave me a full scholarship, instead of the top-tier school that I wanted to go to. My parents knew nothing about the student loan system and were vehemently against borrowing for school anyway. I ended up doing quite well in my career despite not going to the best college I could get into at the time. YMMV.

Alexandria
Alexandria
10 years ago

Great post! And we did a total 180 on how we deal with our money. We now make more money then we ever have, we save over 50% of our income just about every month. We are both working on second masters degrees. We have considerable student loan debt, and are working on a snowball plan for that, but trying to get a solid emergency fund set because of our lifestyle. So once we meet our mark for emergenycy fund, every last spare penny is going towards getting 100% out of debt (we have already paid off our consumer debt… Read more »

Kent K
Kent K
10 years ago

I agree with your advice Neal. Seeing my own parents (in their early 60’s) struggle with being able to afford retirement has made me alot more conscious of my own requirements as I just turned 30 years old. I think part of the problem is that there is a disconnect between the “ideal” life we wnat and what is either attainable or really important. I think for the majority of baby boomers this “ideal” lifestyle was so ingrained in what they view they HAD to achieve in life. Probably because they grew up with parents that lived through the depression… Read more »

ES
ES
10 years ago

Excellent post! I live in Canada where home prices are still rising and people still believe that their home will fund their retirement. Thanks for the great advice.

Elysia
Elysia
10 years ago

I really value this list and have certainly learned a lot from my parents (what not to do) and I think we’ll be in better shape than that. We’re certainly working on it and have no plans to stop that.
But I have to say, and I know it’s totally irrelevent, that I LOVE the automatically generated related articles!
– How I Finally Defeated Dandruff
ROTFL

HollyP
HollyP
10 years ago

I’m glad to see I’m not the only first-wave Xer who learned from the economy of the late 70s/early 80s. Has my behavior changed? Not that much, because I grew up under the strong influence of my grandmother, who was a teen during the Great Depression. I learned to be careful of debt. I’m not perfect, but I’m no profligate either. However, as a person in her mid-40s, I find that my list is identical to the authors except for the last item. I’ve lived my entire adult life expecting to work long past 65. I am definitely discouraged that,… Read more »

amy
amy
10 years ago

@Meredith (#13) – “Sorry Junior, we can pay for community college right out of pocket, but if you want to go to the best school that will have you, pay for it yourself?” That was similar to what my parents said to me. They told me they would help as much as they could(and that was about 2 years of university; it probably could have been 4 at a community college). But for the rest of it, I was a smart young adult and would need to figure it out for myself. I ended up taking extra courses to graduate… Read more »

Ris
Ris
10 years ago

My behavior has been influence by what I’ve seen my parents go through. They are prudent but have taken hits, for sure. I’m only 25 and I put 33% of my income towards savings and my Roth IRA, in addition to my work retirement plan, which my employer also contributes to. Also, I work in higher education so I’m not exactly making the big bucks. I just live frugally and put away all that money (through automatic withdrawal) at the beginning of the month so it doesn’t even figure into my monthly budget. If I have money “left over” at… Read more »

ctreit
ctreit
10 years ago

If equity in our homes has melted away in our 50s, it sure does not sound like we were responsible and didn’t take out home equity lines. Depression in the 40s and 50s is quite normal. Things get better as you get older. Most people start looking back at their lives with rose-colored lenses later on in life. It is the same with our marriages. Life and love go up and down, but if we stick with it, most of us end up pretty content. Who says inflation is just around the bend? The Japanese inflated the economy like mad… Read more »

Kevin
Kevin
10 years ago

I’m not a Boomer, buy my best pieces of advice would be “don’t have kids” and “don’t get divorced.” An awful lot of financial missteps are easily washed away if you don’t have kids weighing down your finances. We’re DINKS, and we’re far, far ahead of our peers with children, even after having wasted 10’s of thousands of dollars in ill-advised “investments.” We bought way too much house ($400,000, which will be paid off by the time we’re 40), we’ve bought 2 brand-new cars, we’ve traveled, and yet we’re still debt-free except for the mortgage, and have $20,000 in the… Read more »

Rob Bennett
Rob Bennett
10 years ago

I think the recent economic turmoil is a fantastic opportunity for everyone to really “wake up”, take notice of what’s working and what isn’t, and then do things a little differently. I strongly agree with these words. We have a huge opportunity here. But I think that the most important takeaway is that we cannot trust the investing “experts” to tell it to us straight. I know of many people who gave thought to lowering their stock allocations when prices went to insanely dangerous levels and were talked out of it by the “experts” touting Buy-and-Hold. Get Rich Quick doesn’t… Read more »

elisabeth
elisabeth
10 years ago

Not all boomers made those mistakes! We are boomers who learned a lot from my husband’s parents (children of the depression) who taught us how to live within our means from day one, and so we are well situated now: house paid off, savings that aren’t all tied up in stocks, and, most important, habits and attitudes that will help us continue to live within our means, even if those means decline.

Kate
Kate
10 years ago

I lived in the Bay area in the late 90’s and I did well, but I struggled with the feeling that everyone was getting rich except me. It’s a sad identity that we are what we buy.

Tracy
Tracy
10 years ago

I thank my family everyday for teaching me financial lessons. My grandmother worked until she couldn’t walk anymore (due to clogged arteries) and she had no retirement, so she had to sell her home and move in with her daughter until she died last year. My uncle made a good living as a commercial painter, but about 10-15 years ago he developed a gambling problem and squandered his savings. He did quit and was making up the money, until years of smoking and inhaling paint fumes caught up with him. He has emphazema, can’t work, and lives in a shell… Read more »

KB
KB
10 years ago

@ Meredith (#13)- I don’t think there is anything wrong with college students taking out loans in their own names. That’s what I did- got a scholarship, a grant, and loans to cover the cost of my expensive private 4 year school. Although my income is probably less than half of what my parents earn, I am in a much better position to pay off that debt than my parents because they also have a mortgage, my sister’s tuition, retirement, medical expenses, and other expenses to pay for.

gail
gail
10 years ago

Retirement? What’s that? I think alot of us boomers are already realizing we’ll be working for 10-15 years after “retirement age”.

Good post tho.

RMom
RMom
10 years ago

Have you changed your financial behavior as a result of what you’ve seen others go through?
>>>>>
Absolutely. Most definitely. Early retirement is our goal and it’s going to be tough to do but we still have a little time to make it a reality. Good article!

Nicole
Nicole
10 years ago

I study aging and retirement, so I’ve been seeing the numbers for boomers for the past 15 years or so. Social Security is definitely worried about you guys, both in terms of your pressure on social systems but also in terms of your future quality of life. (This part of the government is definitely not heartless.) Keep saving and keep working as long as you can. But don’t assume you’ll be able to work as long as you want to. Health and industry conditions and discrimination and a whole lot of other factors could force a retirement earlier than planned… Read more »

Jennifer Lissette
Jennifer Lissette
10 years ago

I’m a generation Y-er born to a baby boomer and I have definitely had the chance to learn from my father’s mistakes. Mainly, that a “hot” investment probably won’t be hot by the time you hear about it and get into it. I watched my father lose his shirt in tech stocks & real estate, each time having to start over. Last month he told me to stop funding my 401k and start investing in gold. I’m thankful that he’ll have a pension to take care of him when retires. I think some people are just not meant to manage… Read more »

Debbie M
Debbie M
10 years ago

“Have you changed your financial behavior as a result of what you’ve seen others go through?” Yes. * I kept my parent’s frugal ways–they didn’t have much money when we were growing up. I make one of the lowest salaries of anyone I know (friends and relatives), but I’m still doing just fine. * I made sure my house had a solid foundation after seeing walls tear away from the ceiling and hearing about window frames going out of square and breaking the windows. * I made sure my house wasn’t in a flood plain and bought flood insurance anyway… Read more »

ldk
ldk
10 years ago

wow…has this post hit a nerve with me. My parents are in their mid 60’s (I am 39) and have next to nothing saved for their retirement. Their “plan”, such as it is, is to work till they drop. They spent their lives driving nice cars, taking cruises, putting in a swimming pool, etc. In contrast, my husband and I have paid off our mortgage, provided for our kids educations and maxed out all of our retirement accounts plus some. (FYI..I also paid my own way through University and paid for most of my own wedding.) Their refusal to even… Read more »

Margot
Margot
10 years ago

I completely agree with all of the advice in this post. The part that continues to mystify me is the comments and assumptions that people continue to make regarding the recession. HOW CAN PEOPLE WHO ARE OLDER THAN 20 AND HAVE ANY BRAIN FUNCTION ASSUME THAT A BOOM WILL BOOM FOREVER??? It’s insane. And greedy. People keep acting like something was taken from them or like they were shocked by a receding of investment values. The definition of a boom is that things are over-valued and will eventually shift the other way. Nearly everyone knows that, you just choose to… Read more »

Shara
Shara
10 years ago

@Adam and Meridith There will be people who disagree with me, but here is my take: For undergraduate education just about any school will do if you work hard and keep your nose clean. Could you make contacts at that big IV league school? Maybe. Though that isn’t likely to happen unless you stand out. And if you’re the type to stand out you will stand out anywhere. Having a cultural fit is important too, but just because you’re smart doesn’t mean you need to go to the best school that will accept you. Sometimes smart people do better in… Read more »

Me
Me
10 years ago

@idk – I hear you. When I tried to talk to my MIL about their wills after my grandmother died (the topic came up because there was a problem with hers) it got back to me that I was money grubbing. I don’t think the word “money” ever came up in our conversation. My husband and I are anticipating that one our parents will probably be living with us due to lack of planning on their part. One thing I have learned so far that I haven’t seen mentioned is not to put most of your 401K money in company… Read more »

Ely
Ely
10 years ago

I try to learn from my dad – he’s a boomer but also an immigrant from Eastern Europe, and frugal is in his blood. He has always spent, saved, and invested smartly, and values education above all. However there is one area where I can never match him and that is income. He is an engineer and has been pulling down monster paychecks for years. I just don’t have the brains or the personality required for that kind of work, so I’m stuck with middle-of-the-road paychecks. Not for lack of trying; we all took high-level math and science in school,… Read more »

Mike Choi
Mike Choi
10 years ago

I completely agree that you can learn from older folks who made mistakes or didn’t make mistakes.

I sit next to an older fellow who retired from his former job and now works at my company part time because it covers his medical expenses. Sitting next to him day after day has provided me with invaluable knowledge about saving and investing and how I can reach retirement. BTW, this guy is married and his only child through college, he wasn’t a single all the through retirement. In fact, his wife didn’t work at all!!

morrison
morrison
10 years ago

You forgot to mention travel. Do your traveling while you are young(er). It’s better to walk the River Seine while in your 30’s, 40’s than with a walker in your 70’s. I retired at 50, with a paid off mortgage and no debt. I didn’t have one penny invested in Wall Street so I suffered no loss in investments. BUT, life is long. Nothing prepared any of us for The Great Recession. My saved money could not keep my lifestyle going. Rather than downsize anymore, I went back to work at 59. And I’m loving it! I shouldn’t have quit… Read more »

Nicole
Nicole
10 years ago

to counter the idea that your kids need to pay for everything to learn how to save… My parents paid for my education and wedding both and I’m a great saver. DH’s parents didn’t and he was a spender until we got married and schooled in my style of personal finance (and we paid off his loans early… were it up to him without thinking about it he’d have paid the minimum each month). The difference is that financial education was always a part of my life from before I knew what a penny was but was a big secret… Read more »

Pirate Jo
Pirate Jo
10 years ago

After seeing what the Boomers have gone through, I began focusing less on wealth accumulation and more on being debt-free. When the market crashed in 2008, I was sitting there with less money in retirement accounts than I had even contributed over a 15-year period of time, and you can forget about gains. So when it finally crept back up this year to the point where I at least had what I had put into it, I pulled out what I needed to pay off my mortgage and did that. The sustained period of unemployment we are experiencing has had… Read more »

Mike Crosby
Mike Crosby
10 years ago

I’m 55 and I’m not afraid. Life is good. I live well below my means, absolutely no debt, and enjoy good health. In fact, I too often take that for granted. A good friend died recently and I heard another friend thought he was going to die soon. Life is fragile, but if I could tell younger people one thing, it would be this: That you, and you alone, are responsible for your own life. Just an aside, when I’m at the gym, I see these kids drinking Vitamin Water, or their “Power” drinks. I want to ask them if… Read more »

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