Forever Young? Boomers Can't Turn Back the Hands of Time on Retirement Planning

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It's official. Baby Boomers are getting younger. "60 is the new 30,"¹ has become the generation’s newest mantra, replacing the now thoroughly inconvenient “Never trust anyone over 30,” As the creators and rulers of the Youth Culture, Baby Boomers are not about to give up their title easily. Boomers are getting facelifts, receiving Botox injections, and dyeing their hair, all in the name of maintaining a youthful appearance.

While their parents may have made jokes that their "get up and go got up and went," Boomers are making no such concessions. "They are determined to live youthfully," says John Rother, Director of Policy and Strategy for AARP. "What we do not find in our surveys is the image of 'I'm going to move to Florida and play golf all day.'"

The question becomes: Will Boomers have the financial resources to maintain a vigorous lifestyle (not to mention, afford all the plastic surgery, etc) and enjoy the activities of renewed youth? Turning back the clock when it comes to physical appearance is one thing; it's quite another when the topic is retirement planning. Just because you look 30 doesn't mean you still have 30 years to prepare for retirement. No magic pill can make up for years of little or no planning or give you more years to prepare. When it comes to retirement planning, 60 is still the same old 60, and for some of the first wave of Boomers who reached 60 in 2006 their lack of planning was a cold dose of reality, For many other Boomers that reality looms up ahead like a major black cloud, threatening to rain on their parade.

So how are they doing, and more importantly, what can Baby Boomers do to ensure their retirement is not their parents, but enables them to pursue the active lifestyle they desire? If they want to enjoy their newfound youthfulness, nothing will help them more than a well-thought out and executed retirement plan.

Three-Legged Stool to "Pogo Stick"
Seventy- six million Americans were born between 1946-1964. Today, they represent approximately 25 percent of the population. One Baby Boomer turns 50 every nine seconds. Between 2011 and 2029, Boomers will reach the traditional retirement age of 65 at the rate of about one every eight seconds, according to a February 2004 article by Rande Spiegelman written for the Schwab Center for Investment Research.

As for retirement planning, most Boomers, if they thought about it at all, grew up believing the traditional three-legged stool model of Social Security, personal savings, and company pension would apply to them. Today with the decrease in company-supported pension plans — and uncertainty about the long-term viability of Social Security, that three-legged stool has, as Spiegelman puts it, "been turned into a pogo stick."

Long on Confidence, Short on Direction
While there's no question many Boomers are in a precarious position, and will be personally responsible for their retirement, they appear to be facing the situation with confidence, if not a particularly firm grip on reality. According to the 2007 Retirement Confidence Survey conducted by Employee Benefit Research Institute (EBRI) the percentage of workers who report they have saved money for retirement remains level at 66. The report also states that older workers tend to report higher amount of assets. 3 in 10 workers age 55 and older cite assets of $250,000 or more.

There had been earlier reports that Baby Boomers could rest easy because they will be inheriting close to $10 trillion. That now appears overly optimistic. (Check out Baby Boomers' Inheritance: The Sobering Reality) In fact the average inheritance received in 2001 amounted to $48,000, according to AARP, a nice enough figure, but not one to base a comfortable lifestyle on. The really large payouts appear to be reserved for those already at the upper end of the economic scale.

Indeed, EBRI paints a potentially bleak picture of Boomer prospects in retirement. Currently, according to EBRI , only 15 percent of working age Americans have an Individual Retirement Account (IRA) and only 22 percent contribute to a 401(k) plan. Overall, according to EBRI, American retirees will have $45 billion less in retirement income in 2030 than they will need to cover basic expenses.

No Panic Button
Others paint a rosier picture. BusinessWeek, in its July 26, 2004, cover story on Baby Boomer retirement entitled "No Need to Hit the Panic Button," indicates Boomers can afford to take a more of a "What, Me Worry?" approach to their retirement because they are saving at approximately the same rate as their parents and have accumulated more real wealth and earn more real income than their parents did at a comparable age. The article also points out that a projected shortage in the labor market means that all the youthful looking "60somethings" will be welcome in the workplace.

Whether you accept the optimistic or pessimistic outlook, one thing is clear: Baby Boomers as they have done over the past 40 years will redefine what it means to be retired. "Boomers because of their sheer number, have had things on their terms," says Helen Dennis a Lecturer at the Andrus Gerontology Center at the University of Southern California. "They are going to want retirement on their terms rather than fitting into a system that doesn't make sense to them."

Take their attitude toward work for example. Baby Boomers, out of both desire and necessity, are planning on working well past normal retirement age. Workers who are not confident about their financial security in retirement plan to retire later, on average, than those who express confidence. Others planning to retire later include workers who are either in excellent, very good or good health.

Reality Check and Plan
No matter which view of retirement planning you take, both optimists and pessimists agree that Boomers must take time to do a "reality check" and take some basic proactive steps to secure their retirement.

1. Create a Plan
   Many financial experts say you will need from 70 to 80 percent of your pre-retirement income to maintain your standard of living after you stop working. This figure has increased in recent years for a variety of reasons, including inflation, increasing life spans, better medical care, and changing expectations during retirement. If you plan to be part of the youthful Boomers, the time to start is now. Use an online calculator, like the ones available at this site, to get an estimate of your income needs and how much you will likely need to accumulate.(Check out the Comprehensive Retirement Planner.)
2. Save More/Maximize Contributions
   If you don't have any established retirement plans, begin a savings plan now. Set a monthly goal and stick to it. If you can, contribute to an employer-sponsored savings plan. Contribute the maximum or at least be sure to contribute enough to be eligible for any company match, if available. The maximum contribution to a 401(k) is $15,500 for 2007 and those 50 and over can contribute an additional $5,000 as a "catch up" to their 401(k) plan. This is especially true for women.
3. Diversify
   Thanks to the Enron and WorldCom debacles most people now realize that parking the majority of their contributions in company stock is not the best idea, and opt to spread it around a variety of options based on their personal time horizon and risk profile. (Check out Lessons Learned from Enron.)

   Most experts believe that if you have a time horizon of 10 years or more, your 401(k) should be heavily weighted in stocks, but spread out over several sectors. They recommend a mix of small, mid- and large-cap domestic stock funds and international funds. This kind of diversity may help to smooth out potential ups and downs of Wall Street.

4. Finally, be sure to find out about new policies, plans, and products that are available. Insurance companies introduce new products and enhance their existing products each year. Ask the appropriate insurance professional about new life insurance policies, and products for retirement savings and other strategies, and how you may be able to take advantage of them.

¹ December 2003, AARP Magazine"

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