The only thing better than learning from our investment mistakes is learning from somebody else’s. 

As Baby Boomers are winding down their work schedules, many of them are finding, according to this Wall Street Journal article, that their investment accounts aren’t going to cover their living expenses.

Hopefully, the current generation of workers is going to learn from the Baby Boomer’s mistakes.

You could argue that the Baby Boomers had a better environment for wealth accumulation than any generation in history.  The 30-year work span from 1981 to 2011 saw businesses handing out pensions (dream on generation X and Y).  There was also an employment environment that was so relatively cushy; many boomers were able to work for the same company their entire lives.  And the stock market took whatever savings they did choose to invest and catapulted their investment accounts into the stratosphere.  But myriad reports still suggest that the boomers messed up.

Let’s focus on investing for a moment, to see how the average professional boomer should have done:

Just $2,000 in 1981 would have turned into more than $30,000 by January 2011, if a Canadian worker split his/her money between a Canadian stock market index, a U.S. stock market index and a bond market index.  …read more

 OK, I know what you’re going to say.  You couldn’t buy index funds in Canada, in 1981.  That’s true, but my point here demonstrates how much the markets moved upwards during that time period.  We did have actively managed mutual funds, and if they could have turned $2,000 into $26,000 over that 30 year period, you’d be looking at a compounding gain of 9% annually (a return that underperformed the market index from 1981 to 2011).

That would have included the crash of 1987, 2002 and 2008/2009.  All told, the boomers had a great environment for investing.

Assume that they saved $5,000 between the ages of 25 and 30 (that’s $83.33 per month for 5 years).  Then they invested that money in a batch of really inefficient mutual funds.  I can’t help taking a stab at the mutual fund industry, but if the markets moved ahead by 10.5% a year, then after hidden investment fees, the average investor might have made 9% annually in mutual funds.

Then assume that they saved $333 per month for 30 years (roughly $4,000 per year), investing in those really inefficient mutual fund products again.

Granted, during the 1980s, that would have been a lot of money.  So perhaps they could have invested less than this earlier on, while catching up when their salaries increased over time.

At 9% annually, this would have given the boomers an investment portfolio of $660,339 if they invested $333 per month for 30 years.

With an insurance annuity (not a variable annuity) they could ensure $39,620.34 a year in retirement income (roughly 6% of their investment), not including any money they’d accrue from CPP or Old Age Security.  Including these two government income sources, they would be earning $50.000+ in passive retirement income.   

 And if they had their home paid for at age 65, they’d be set to live reasonably well after having saved an average of $76.92 per week ($4,000 per year) over just 30 years of their working lifetimes. 

 But according to The Wall Street Journal article, most Boomers have fallen short of their potential.   The biggest problem with people not meeting their investment goals is probably due to a spending issue.  They live lifestyles that they can’t afford, without recognizing that they can’t afford them.

Learn from the boomers.  They were given the world on a platter, and if the U.S. data in The Wall Street Journal article is any example, they messed it up. 

 My guess?  I think the average boomer spent too much. 

What do you think?  And what’s in store for the next generation?  Will the average generation X/Y/Z worker benefit from the Boomers’ failure?