Go to: 
If there's a consistent theme in everything written on the topic of being ready for retirement, it's planning. But many Baby Boomers, the group born between 1946 and 1964 and the largest generation in U.S. history, may have been lulled into a sense of complacency by reports, that they as a group stand to inherit trillions — yes, trillions — from their parents, according to an October 27, 2007 article in Baby Boomer Magazine.com "Inheritances are not going to make a big splash in the finances of most boomers," says John Gist, associate director of AARP's Public Policy Institute, which recently made a study of the subject. "The safest bet boomers can make is to consider themselves on their own financially and manage their money accordingly,” says Gist in the March 2004 edition of the AARP Bulletin, in the article, “Will Your Ship Come In? Baby Boomers May Inherit the Wind—But Not Much More,” by Walt Duka.
The idea, according to the article, that the boomer generation might inherit such wealth grew out of highly publicized projections made by economists more than a decade ago. They concluded that, as people born in the 1930s or earlier die, they will produce the nation's greatest transfer of wealth between generations, passing on $10 trillion or more to their children. Such a massive transfer is not likely to occur. In 2006, an analysis done for AARP confirmed that, so far at least, boomers haven't reaped a huge windfall. Of those who have already received inheritances, the median amount as of 2004 totaled $64,000, according to the study, which drew on Federal Reserve data, according to an article, “Boomers’ Big Inheritance Is It Enough, ” by Mark Turnbull in the January 23, 2007, Christian Science Monitor.
Boomers, now approaching retirement, with the oldest members having turned 60 in 2006, may not be planning as aggressively as they should.
What Happened?
What happened to Baby Boomers' windfall, the trillions? While it's true that Baby Boomers' parents had indeed built up sizable nest eggs over the last 50 years, longer life expectancies, soaring health care costs, long–term care costs, and recently the poor economy have chipped away at their savings, reducing—in many cases down to zero—the chances that Boomers will inherit enough to live on. In addition, Baby Boomers have more siblings, which means there are more people over whom to distribute available money.
AARP’s Gist and his co-authors, Mitja Ng-Baumhackl and Carlos Figueiredo, say, older parents are living longer and spending more. People who are 65 today can reasonably expect to live perhaps another two decades, and many intend to use that time to treat themselves to long-denied luxuries such as travel, new cars and gourmet dining.
In addition, living longer means more health and long-term care costs — costs that can quickly gobble up assets.
Baby Boomers' retirement will indeed be vastly different from their parents. A 2005 survey "The New Retirement Survey," conducted for Merrill Lynch by Harris Interactive® in collaboration with Age Wave, builds upon conventional wisdom that boomers are not interested in pursuing a traditional retirement of leisure. The majority of boomers relate they plan to keep working and earning in retirement, but will do so by cycling between periods of work and leisure, thus creating a new model of retirement "Baby boomers fundamentally will reinvent retirement,” said James P. Gorman, president of the Merrill Lynch Global Private Client Group, in a news release about the survey. “With (baby) boomers living longer and remaining engaged and employed beyond age 65, many of the traditional financial assumptions regarding retirement need to be reexamined.”
Boomers will remain active, work longer, and travel more than their parents' generation. For them, retirement is more a lifestyle transition than an end in itself. They plan to work longer, travel more, volunteer their time, and even return to school.
Before and after retirement, health care expenses and the cost of long term care will continue to rise precipitously. Many waited to have children and will therefore carry college costs later into their lives. And, of course, general living expenses will continue to rise.
At present, many financial planners suggest replacing at least 75 percent of pre-retirement income in retirement, if not 100 percent, given longer life expectancies and increasing healthcare costs, according to a May 2006, article “Brave New World for Baby Boomers” by Yeske & Company, San Francisco-based investment advisor.
A Final Trend Worth Noting
A November 2005 study by Hewitt Associates, a human resources consulting firm, found that in 45 percent of workers changing jobs last year cashed out their 401(k) plans instead of rolling the money into another retirement savings account. About a third of job changers ages 50 to 59 took these distributions in cash. (Taking a full distribution on your retirement plan savings in cash triggers both income taxes and a ten percent penalty if you're under age 59½.)
Bottom Line
Baby Boomers should expect very little in the way of wealth transfer from their parents and they're likely to need more money in retirement than they think.
Wealth Accumulation Strategies
The good news is there's still time for most Boomers to proactively plan and organize their finances and enjoy a secure retirement. Here are some strategies for saving more, starting right now:
First, the Basics
Work with a financial professional to clearly define your objectives, determine how long you have to reach your financial goals and how much you'll need to get there, and carefully evaluate your risk tolerance.
Your 401(k) or 403(b)
Despite all the concerns about 401(k) and 403 (b) plans recently, these are still among the best ways to accumulate retirement savings. Over the past few years, however, many people have not only seen their account balances drop, but have dipped into their 401(k) plans to pay for living expenses.
The reasons for participating in a 401(k) plan make overwhelming sense:
- There is an immediate tax savings on contributions.
- Potential earnings grow tax-deferred.
- Loans and withdrawals are usually available.
- Employers often match employee contributions up to a certain percentage.
- This last is where current participants can make the biggest improvement. If you aren't contributing the maximum and receiving the maximum match from your company, think about beefing up your contribution as soon as possible.
- If you are currently participating in either a 401(k) or 403(b) plan, be certain you're maximizing your allowable contributions, including those that are stipulated by the plan and federal government limits on annual contributions.
- If you lose your job and need to tap your savings plan balances, rather than cash out the entire amount which triggers both income and excise taxes, you may be able to take out a small loan or withdrawal and transfer the balance into an IRA or into your next employer's plan, if this is permitted.
IRAs
Remember you can still open a deductible IRA even if you participate in an employer–sponsored retirement plan, provided you have an adjusted gross income below $60,000 if you're single and below $80,000 if either you or both you and your spouse participate in a tax–qualified employer–sponsored plan. Check with your financial professional for full details on IRAs.
529 Plans#
529 Plans are designed to provide money for college expenses, enabling Boomers to sock away a sizable amount of money for their children's education.
#Offered by properly licensed registered representatives.
Long–term Care
Long–term care insurance is on the minds of many Baby Boomers, because while it won't help you accumulate money for retirement, long–term care insurance can help you avoid using your accumulated assets to pay for long–term care costs.
Indeed according to many financial professionals, the greatest financial risk in retirement is not hospital or doctor bills, but the very high cost of long–term care. Medicare usually covers very little of the cost. Anyone over 50 who has assets to protect but is not wealthy enough to comfortably pay for long–term care out of savings needs to consider long–term care insurance.
A Final Note
More than likely, a very small percentage of people will receive a sizable inheritance from their parents. If you are fortunate enough to be in this group, it's essential to have candid discussions with your parents about finances including named beneficiaries, their long term care needs and plans, estate taxes and their plans for meeting these usually quite large obligations, and more.
Go to:
Be the first to Comment
