3 Baby Boomer Money Mistakes That Gen Z Must Learn From

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It wasn’t too long ago that the baby boomers were babies. But today, they’re either retired or close to it — and many are in for a tough road ahead.

According to the Transamerica Center for Retirement Studies, the median boomer has $202,000 saved for retirement, which might sound like a lot. But based on the 4% rule, that’s just $8,000 per year — and the median is doing better than many. Nearly half of all baby boomers have nothing saved at all.

The oldest Gen Zers today are where the oldest baby boomers were at the start of the 1970s, and they have a golden opportunity to learn from the mistakes of their elders — and they made plenty.

The following is a look at the three worst money mistakes that baby boomers made and what today’s young adults can do to avoid them.

Boomers Put Too Much Faith in the Stock Market

In June, the Wall Street Journal ran a story with the headline, “Boomers Got Hooked on Stocks. Now They Can’t Let Go.”

That same month, a Barron’s headline blared, “When Baby Boomers Love Their Stocks Too Much.”

Those two publications are hardly alone. Organizations as varied as Gallup, Business Insider and Bentley University have all issued reports chronicling the baby boomers’ chronic overreliance on equity investing compared to other generations.

“Many baby boomers mistakenly thought stock market returns in the 2000s decade would be similar to those of the 1990s decade,” said accredited financial counselor Camille Gaines, founder of Retire Certain. “As a result, their retirement plans were based on estimated future returns that were too optimistic given the high returns from the spectacular bull market in the 1990s.”

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Gen Z Should Plan With the Sequence of Returns Risk in Mind

It wasn’t just the ’90s. The post-2008/pre-COVID-19 bull market of the 2010s was the longest in history, and the market quickly bounced back to new highs after the pandemic crash. That might have given older investors reckless confidence to keep their money in play. Then, just as many stock-heavy boomers began drawing from their nest eggs in early retirement, an extended downturn turned into a bear market right when inflation hit a 40-year high.

They fell victim to what’s called the sequence of returns risk.

“Sequence risk relates to the timing of retirement withdrawals in relation to poor investment returns,” said Gaines. “Gen Z can plan conservatively and be aware of the sequence of returns risk in their retirement planning.”

Boomers Traded Retirement for Their Kids’ Educations

In 2012, when the oldest baby boomers were beginning to retire, the National Center for Policy Analysis released a study that showed boomers were spending a greater percentage of their income on education and their adult children — including paying back their student loans — than they were on retirement savings. A little more than a decade later in 2023, two out of five boomers are on deck for retirement with nothing saved at all.

“Many boomers have spent on their children’s education at the sacrifice of their own retirement savings,” said Gaines. “Gen Z can keep retirement savings as a top priority to avoid becoming dependent on their children later in life.”

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Simultaneously contributing to a college fund and a retirement fund is no easy task, especially for young parents — but thanks to the power of compounding, time is more valuable than money. According to Forbes, the best move for today’s young parents is to contribute even just a little to a 529 college savings plan and a tax-advantaged retirement fund on a regular basis as early as possible, right when their kids are born.

Boomers Relied on Their Homes as a Golden Ticket

The GI Bill enabled the first wave of mass homeownership in the United States in the years after World War II. Many boomers learned from their parents that buying a house was synonymous with the middle-class financial security that defined the American dream.

They weren’t necessarily wrong, but while homeownership might have been the cornerstone of that dream, it was just one piece of a larger puzzle.

“While owning a home can be a good investment, it shouldn’t be the only one,” said Dennis Shirshikov, professor of finance, economics and accounting at the City University of New York and the head of growth at the real estate investing site Awning. “Baby boomers often viewed their homes as their primary asset, but Gen Z should diversify their investments, including stocks, bonds and perhaps real estate beyond their primary residence.”

Gen Z Should Not Put All Its Eggs in the Real Estate Basket

Home prices rise over time, just like the stock market. But with both, there are ups and downs — sometimes big ones — along the way.

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“Many boomers bought homes when the market was strong, thinking prices would always rise,” said James Allen, certified financial education instructor, financial advisor, certified public accountant and founder of Billpin.com. “But when the Great Recession hit, they found themselves with properties not worth a fraction of the original cost.”

If your retirement date coincides with a housing crash like the one in 2008 and your plan depends on your equity, you’ll be in the exact same situation as overweight stock investors who crash head-on into sequence risk during bear markets.

“Boomers used home equity as a primary retirement nest egg,” said Allen. “If there’s another real estate slump, those who bought property as an investment could end up paying high prices for something that’s lost significant value. Gen Z, diversify your investments.”

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