Close Close

Life Health > Running Your Business

Unintended Consequences of the Boomers

Your article was successfully shared with the contacts you provided.

In October 2007, a retired school teacher, Kathleen Casey-Kirschling (who was born one second after midnight on January 1, 1946) became the first Baby Boomer to apply for Social Security Benefits. Her benefits started on January 1, 2008. Her 79 million compatriots will soon follow — at an expected rate of more than 10,000 per day.

According to a report in USA Today, roughly half of the people reaching age 62 in 2008 will choose to take early retirement. They will also choose to take about 75% of the benefits to which they would be entitled if they waited until age 66. By 2012 the remaining participants will start retiring and take their full share. Or will they?

Entitlement Programs

The 2008 Annual Report of The Board of Trustees of The Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (issued March 25, 2008) continued the alarm about the impact of boomers on the federal entitlement programs. The report noted that “Annual cost will begin to exceed tax income in 2017 for the combined OASDI Trust Funds, which are projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2041.”

Hopefully, the next Congress will have the political will to address this looming bankruptcy. Until it becomes clear whether and how Congress will deal with the issue, estate planners and financial advisors need to encourage their clients to plan for a possible future with limited or no federal entitlement rights — taking advantage of favorable tax rules while they last.

In addition, advisors should encourage clients who are providing or expect to provide help to other family members (e.g., parents, in-laws or siblings) to consider buying long term care for those family members, including them as beneficiaries in family trusts or otherwise making sure their needs are addressed in the estate plan.

While there has been much media coverage about the problems in the entitlement programs, there are other areas which may be every bit as significant to estate and financial advisors, but which have not received nearly the same media attention. The remainder of this article will address some of those areas.

Family Business Transition

Ninety percent of all American businesses are family owned. Sixty percent of US publicly traded businesses are family controlled. And thirty-five percent of Fortune 500 companies are family controlled. Over three million US family businesses have been created in the last five years.

Despite their growth and large impact on the American economy, 65% of family-owned businesses fail to survive to the second generation and 86% fail to survive to the third generation. One reason for these higher percentages is the failure of family leaders to plan for the passage from one generation to the next. This issue is particularly acute for companies run by boomers.

A study issued on American family businesses in January 2003 by Mass Mutual Financial Group showed that 39% of family business leaders expected a change in leadership in the following five years, but 42% had not identified a successor leader and 20% had done no estate planning. This lack of planning is a disaster waiting to happen for many businesses, especially if the existing leadership should die or become incapacitated prematurely.

The passage of any business can be a highly chaotic event. It can be even more so in a family business. Emotional issues that are largely absent from non-family transfers can often destroy the transfer — and the business and family in the process. An increasing part of estate and financial planning therefore seeks to help family businesses manage the emotional, management, business, legal and tax complexities of transferring the family business from one generation to the next.

Selling the Closely Held Business

In 2001, roughly 50,000 small business owners intended to retire. In 2009, the number is expected to be 750,000, a 15-fold increase. Unfortunately for the owners who intend to sell the business, there are no more buyers than then there were in 2001.

Baby boomer business owners have often spent a lifetime plowing all of their energy into a closely held business, expecting the business to provide for their long-term retirement needs. This author has found that many entrepreneurs have from 70% to 90% of their accumulated wealth tied up in their closely held business.

According to a 2003 article by Roger Winsby, titled “Sell-Side Trends: The Business Transition Tidal Wave,” roughly a 33% of business owners expect to pass the business to family members; 33% expect to sell to outsiders; and 18% intend to sell to employees. The remaining portion will just shut their doors.

As a result of an over-supply, prices for small businesses are declining, even while sellers are being required to assume more risk in the sale through long term buy-outs, employment agreements, earn-outs and other deferred payment arrangements.

Selling to employees and family members is often an even riskier venture when the buyers lack sufficient capital to provide significant down payments. That forces the owner to receive long-term payments from buyers who may not have the requisite entrepreneurial skills and funds to keep the business alive in a competitive market.

For a closely held business owner who wants a stress-free retirement, the sale may keep him or her at risk and in stress for long into retirement.

Housing Impact

According to a number of studies, home equity constitutes at least 50% of the net wealth of half of the US households. Given the current mortgage crisis, the falling real estate values and the looming retirement of 79 million boomers, estate and financial advisors need to encourage their clients to consider the impact on both their retirement and their estate if the value of their homes not only fail to retain their current value, but actually drop over the next several decades.

Divorced Men

Boomers tend to divorce at rates that are three times those of their parent’s generation. One unintended consequence of these high divorce rates is the number of single men who are entering retirement age without a family support structure.

The dysfunctional families created from these high divorce rates often mean that the children and step-children are not willing to take on the burden of aiding fathers in their elderly years. Interestingly, studies report that step-children are more likely to take care of a step-mother than a step-father.

These “orphaned fathers” will have to prepare for their long term financial and health needs without the aid of the normal family support system. Planners will need to be cognizant of this lack of support in planning for such clients.

Elderly Women

It has long been known that statistically women outlive men. One consequence of the baby boomer bubble will be the large number of single elderly women. (See chart.) At age 85, there are more than twice as many women as men still living.

Targeted marketing of estate planning and financial services to this population will increase over the next several decades. Planners will have to have the personal skills to deal with the unique concerns of elderly women.

For example, in many households, women have not actively participated in the financial decision-making for the family. Once the husband dies, the wife may be ill-prepared to make these decisions, particularly when her mental capacity will be diminishing with age. Trust and simplicity will become a pivotal part of planning for such clients.

Incapacity Planning

According to the Alzheimer’s Association, one of every eight people over age 65 has Alzheimer’s, while one out of every two over age 85 has the disease. As boomers age, their mental capacity and decision-making abilities will naturally decrease.

Every baby boomer should have a medical directive and durable general power of attorney so that decisions can still be made upon their incapacity. Even those clients who refuse to address their own mortality by drafting a will should want to execute these documents to avoid the cost, conflict and delay of having a guardian appointed upon incapacity. This need is particularly acute for single boomers who may have no family support system in place.


It has long been known that boomers were not putting away sufficient funds for retirement. One explanation has been that they thought the inheritance they would receive from their parents would help cushion their retirement. About the time the boomers started retiring at age 60-65 mom and dad were expected to pass on a nice inheritance.

Unfortunately for the boomers who expected this inheritance, it does not appear to be happening. According to a study by AARP, only about 19% of boomers will receive an inheritance — at a median value (in 2005) of $49,000. Mom and dad are not only not dying at age 65-70; they are living an expensive retirement lifestyle whose travel, upkeep and health care costs are eating up junior’s inheritance.

Perhaps because of a growing recognition of all of the above trends, a June 12, 2007 report on CBS NEWS noted that 80% of boomers expected to work at least part time after retirement. Some will do it because they like to work. Many will do it because they have no choice.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.