Builders might want to plan for fewer retirees than expected

For years, homebuilders and others across the U.S. have been planning for the wave of 78 million baby boomers to retire. However, a Business Week article argues that some of these past estimates have been too optimistic, as a combination of falling housing prices, a bear market in stocks and a gradual reduction in defined benefit pension plans will force many boomers to continue work well into their retirement years:

Companies from cruise lines to retirement communities and financial consultants have been planning for this mass retirement. They hope to profit grandly by selling goods and services to tens of millions of relatively young boomers with bulging nest eggs and decades of free time ahead.

But demography is not destiny—and it may not even make for a good business plan. It looks like fewer of those 78 million will be either rich enough or young enough at retirement to meet the expectations of businesses catering to boomers released from the workforce. This shortfall, and how it may dash such hopes, is the focus of a new study co-authored by Kevin P. Coyne of Atlanta's Coyne Partnership. In coming decades, "the size and growth rate of the U.S. retirement market will be much smaller than is widely believed," he says...

It's the long-term perspective, however, that sets Coyne's analysis apart. He sees permanent shifts taking hold. And the implication is that some portion of the billions companies are spending on services aimed at retirees could be misspent. Experts are bound to disagree on the scale of this investment, but in light of Coyne's report, creators of such services may need to rethink some of their assumptions.

For financial and social reasons, the propensity to delay retirement is increasing, Coyne says. The total number of retirees over the next two decades will grow by less than 3% per year, on par with the overall population, and could fall to as low as 1%, he says. By 2017 this will lead to some 5 million to 10 million fewer retirees than some marketers have been counting on.

Certainly, a shift is under way. In the first four months of 2008, about 30% of 65- to 69-year-olds were either employed or looking for work, up sharply from 24% in the last business-cycle peak in 2000, according to the Bureau of Labor Statistics. Look one rank down, at 60- to 64-year-olds, and 54% are in the labor force, up from 47%.

Social forces are also keeping workers on the job, says Joyce Manchester, an analyst at the Congressional Budget Office. With divorce rates up, more boomers are depending on one income. Many have children just entering college. And a greater number of women now hold white-collar jobs, which are less physically taxing and so easier to stick with than jobs women held in the past. What's more, boomers make up the first generation to fund retirement partly from finite pools of savings instead of wholly from guaranteed-for-life pensions. Says AARP's director of financial security, Jean Setzfand, "That makes them fundamentally more cautious."