A surge in baby boomer spending is beginning to slow, as retirees struggle to keep pace with income growth.
Over the past two years, Bank of America noted that retired consumers enjoyed increased spending power, driven largely by a boost in Social Security income. Known as the cost-of-living adjustment, or COLA, these payments rise each October to address inflation. The COLA saw an 8.7% jump in 2022, marking the highest increase in four decades.
"This was significantly greater than the wage growth experienced by Millennials, Gen X, and Gen Z at the time," the report highlighted. "For a while, Social Security income for retirees was rising faster than earned incomes, giving older generations an advantage that allowed them to increase spending at a faster rate than younger generations."
Since mid-2022, however, a shift has occurred, with retiree spending growth beginning to lag behind that of younger consumers.
The COLA advantage is fading. The increase for 2023 was only 3.2%, which is lower than the after-tax wage growth among millennials. In 2025, the adjustment is projected to weaken further to 2.5%, signaling a continued narrowing of the intergenerational spending gap. This reduction may reflect that retirees feel less pressure to sustain high spending levels now than they did in the immediate aftermath of the pandemic.
The report noted, “Older generations experienced a slower recovery in spending post-pandemic, likely due to heightened sensitivity to health risks associated with resuming social activities. Some of their recent spending strength likely stemmed from a desire to make up for missed opportunities.”
Dampened spending from baby boomers presents a challenge for the broader economy, as this generation’s willingness to spend has contributed significantly to the U.S. economy’s resilience in recent years.
Veteran market analyst Ed Yardeni recently emphasized that baby boomers have become America’s wealthiest generation, holding a combined net worth of $79.8 trillion, thanks to substantial gains in real estate and stock investments over several decades.
