[This is the latest installment in Money Morning's ongoing "Financial Crisis Investing" series, which explores ways for individual investors to repair their finances and investment portfolios.]

By Mike Caggeso

Associate Editor

Money Morning

Attention Baby Boomers: If you are trying to sell your home, more than 30% of you will have to bring money to the table.

And the combination of falling house and stock values means that the vast majority of people near retirement have accumulated little or no wealth, meaning they will be almost completely reliant on Social Security and Medicare to support them in their retirement years.

These are the findings of "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble," a report by the Center for Economic and Policy Research (CEPR), a non-partisan research firm.

"The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners," said report co-author Dean Baker, who will testify today before the Senate Special Committee on Aging. "This reality is compounded by the recent collapse of the stock market. The result is that many baby boomers will only have Social Security and Medicare to rely on in their retirement."

Updating an earlier paper on the topic and using more plausible projections for housing and stock values given the sharp downturn in both markets over the last eight months, the report outlines two other scenarios for Baby Boomers' wealth in 2009.

In the first, and worst-case, scenario, the median household wealth for late Baby Boomers (ages 45 to 54) fell more than 45% between 2004 and 2009 – from $150,500 in 2004 to just $82,200 in 2009. And if they took all the wealth they accumulated in their lifetime, Baby Boomers would still owe more than half of the price of a typical house.

According to the second scenario, the median household wealth for people between the ages of 55 and 64 fell by nearly 38% between 2004 and 2009 – from $229,600 to $142,700. Though not particularly rosy, it's enough for those households to cover about 80% of the cost of their median home.

The CEPR report also says that for both age groups, those who have been renting in that same span will have more wealth in 2009.

"Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth," the report said.

Placing Blame and Changing Policy

Like house values, 401(k) and pension plans have been scorched by the global financial crisis.

Worldwide pension values fell from $25 trillion to $20 trillion in 2008 alone.

And in the 12 months after the U.S. stock market hit its record peak in October 2007, more than $1 trillion worth of stock market wealth held in 401(k)s and other "defined-contribution" plans was eviscerated. Add individual retirement accounts (IRAs) to the mix, and the lost wealth is more like $2 trillion.

Allowing financial bubbles to run their course – which has been the Federal Reserve's policy in the last decade – "virtually guarantees that tens of millions of people will reach retirement with little or nothing to support themselves other than their Social Security," the CEPR report says.

The report also blames policymakers for not identifying the current bubble as far back as 2002, and holds them responsible for drafting legislation that shieldes taxpayers from future downturns.

"These projections should highlight the importance of policies that combat financial bubbles," the report says. "While typical homeowners cannot be blamed for not recognizing the bubble, the economists and policy professionals who designed policies that pushed homeownership certainly can and should be blamed."

[Editor's Note: Money Morning Associate Editor Mike Caggeso has been chronicling the fallout investors have been experiencing from the ongoing U.S. financial crisis, and has also detailed some repair strategies for investors' pension and retirement plans. To read our report on this three-step retirement-repair plan, please click here. The report is free of charge.]

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