Will the Boomers Go Bust?

A widely touted solution in the richer countries of how to pay for an aging population is to keep people working longer. Given the current recession that would certainly seem like good advice. But the Wall Street Journal has noted that this is not as easy at it might appear. The investments of baby boomers have taken a substantial hit, leaving them with less to spend, at the same time that the job market is as unfriendly as they have ever seen it.

Policy makers have long worried that Americans aren't saving enough for old age. And lately, current and prospective retirees have been hit on many fronts at once: They have less money, they earn less on what they have, their houses aren't rising in value and the prospect of working longer to make up the shortfall has dimmed significantly in a lousy job market.

Before the recession hit, many economists assumed people would solve their retirement problems simply by staying in the work force longer. Now, "the recession has blown that idea out of the water," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of a 2008 book that advocated working longer.

The diminishing work prospects will require many older folks to make do with less—a discouraging outlook for firms hoping to sell them everything from restaurant meals to cars.

The impact isn't limited to people on the verge of retiring. Younger people, too, will have to reduce consumption now to save enough money to get by in retirement.