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The baby boom generation will face a very different policy environment compared to their parents' experience. When members of the baby boom generation begin to retire, they will have the same needs as current retirees-a steady stream of replacement income to pay for living expenses and healthcare costs and a plan for how and where they want to live out their retirement years. Their financial foundation in retirement will be determined by prior savings behavior, their work history, any continued earnings, and national policies, most especially the Old Age Insurance provisions of Social Security, as has been the case with earlier retirees. But in many ways, the baby boom generation has faced a different economic environment from that of earlier generations and, as a result, will face an altered policy environment. An examination of these changing environments will clarify both the realities baby boomers will face in retirement and the challenges that may await them. THE SLOWING ECONOMY Contrary to generations before them, the baby boom generation entered an economy that was no longer growing at a robust rate. Between 187o and 1973, the U.S. economy grew at an average rate of 3.4 percent a year, excluding the effects of inflation. But between 1973 and 1993, the average rate of growth flattened to 2.3 percent a year after inflation (Madrick, 1995). It was during this period that individuals born during the baby boom generation were in their mid to late 20s and entering their career paths. But what they faced was falling, not rising, wage levels. The average weekly wages for so-called nonsupervisory workers (representing about 8o percent of the workforce) fell by Is percent during that period. Even if pension, health, and other work benefits are included, the compensation of the typical worker came down from what it had been twenty years earlier. It especially fell for highschool-educated and minority workers (Madrick, 1995). Even a college education has not saved the baby boomers from this downturn. The economy simply could not absorb the large numbers of college-educated baby boomers who entered the job market in the 1970s. The rate of return on a college degree, based on the salaries the graduates were getting, fell to postwar lows in these years (Freeman, 1976). For minorities, the picture is worse. While African Americans made rapid economic progress during the 1960s and 1970s, the gap in pay between whites and blacks opened dramatically in the 1980s. This disparity existed for both the college-educated and the high school graduate. Most analysts attribute this widening gap to the loss of manufacturing jobs in the economy, a trend that most seriously affected black workers (Bound and Freemen, 1992; Wilson, 1996). There are at least two direct results of this decline in the growth of worker incomes. One is the effect lowered earnings will have on future Social Security benefits. Since retirement benefits are related to preretirement earning levels, a lowered income stream across a work life will translate to lower benefits in retirement. Baby boomers are not doing as well financially as their parents did in their prime work years; they will not do as well as their parents are now doing in retirement. A second result is that the baby boom generation has saved less and borrowed more than their parents. In 1997, the Public Agenda Foundation surveyed 1,200 working Americans, aged 22 to 61, about retirement. The survey revealed that 38 percent of baby boomers aged 33 to 50 years old have saved less than $10,000 for retirement. Sixty-six percent of this group say they do not want to worry so much about saving for their retirement that they end up not enjoying their lives now. While these boomers admit that they are compulsive spenders and do not save enough for retirement, few say they will change their behavior (Public Agenda Foundation, 1997). Somewhat more promising is a recent Merrill Lynch survey showing that, for the first time in five years, older boomers are saving more. …
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