Retiree spending helped thwart a US recession. But boomers are losing a key financial advantage.

• Retirees have been spending big thanks to recent gains in Social Security income, Bank of America said.
• But annual payment increases are falling behind workers' wage growth, the note said.
• Some economists have said baby boomer spending helped ward off a recession in recent years.

A baby boomer spending spree is losing momentum as retirees fall behind in income growth.

Bank of America said retired consumers enjoyed greater spending power in the past two years as Social Security income got a boost.

Known as the cost-of-living adjustment, or COLA, the payment increase occurs each October to adjust for inflation. The bank said it jumped 8.7% in 2022, marking the highest increase in four decades.

"This was significantly greater than the wage growth that both Millennials and Gen X were experiencing at the time (the same is true for Gen Z)," the note said. "So, for a while, retiree incomes from Social Security were rising faster than the incomes of people in employment, which helped older generations grow their spending faster than younger ones."

Since about mid-2022, a gap has emerged between retirees' spending growth and that of younger consumers.

However, the COLA advantage is eroding. This year's increase was only 3.2%, weaker than the after-tax wage growth among millennials. In 2025, the adjustment will weaken further to 2.5%.

That appears to have already narrowed the gap in intergenerational spending growth, though it may also be true that retirees don't feel as pressured to spend heavily, the bank said, as was the case after the pandemic.

"Older generations had a weaker bounce-back in spending following the pandemic, in part because they were likely more sensitive to the health risks around resuming social activities. As a result, some of their recent strength in spending was likely them making up for lost time," the note said.

The trouble with weaker spending among baby boomers is that the generation's willingness to splurge has been credited with helping the US avoid a recession in recent years.

Market vet Ed Yardeni recently noted that the boomer generation has become America's richest, with boomer households sitting on $79.8 trillion in net worth due to stellar gains on real estate and stock holdings over the past several decades.