Baby Boomer Retirement Panic?

Jul 25, 2013 by

baby boomers

If this looks familiar, you may be a Boomer.

The oldest Baby Boomers turn 67 this year, the full-benefit Social Security retirement age. Over the next 15 years or so, about 80 million U.S. Baby Boomers—a quarter of the country’s population—will reach this milestone. That’s a lot of Boom.

Challenging Retirement Conditions for Boomers

We all know that many people haven’t saved nearly enough to provide for a secure retirement. These folks will have little choice but to continue working until their health gives out. But events mostly out of Boomers’ control seem also to have conspired to make for, some might say, unlucky conditions just when Boomers are retiring.

  • Thanks to the financial meltdown—blame for which is spread widely per the usual ideology-based arguments, but I think no one is blaming Boomers—savers’ interest rates have been near zero for five years. That’s put a big hit on the growth of savings. Meanwhile, inflation, though thankfully relatively low, has chewed away at the purchasing power of Boomers’ nest eggs.
  • While home values skyrocketed in the 1990s and early 2000s, many Boomers became complacent about socking away savings into financial assets, planning instead to downsize their home and use a six-figure equity difference to help pay for retirement. Though a recovery seems underway in some places, the housing crash wrecked this plan too. That fat home equity targeted for retirement has evaporated, replaced in many cases by an underwater mortgage.
  • When Boomers began working, the defined benefit pension plan was standard. But thanks to high-powered Wall Street marketing, the 401(k) and its ilk have displaced pensions. The company where I worked converted from a pension plan to a 401(k) in the late 1990s. I was all for the idea because I liked the idea of controlling my investments. And my employer liked the change because a 401(k) saved it money by transferring administrative cost to employees and making employees responsible for funding their own retirements. What I’ve learned since is the hefty fees—some apparent and some not—I’ve paid over the years to 401(k) administrators and fund managers have taken a very heavy toll on my nest egg. Also, after enduring the stress of two Wall Street mega-crashes in thirteen years, the boredom of a defined benefit pension plan is sounding pretty good to many Boomers just now.
  • Stocks? Let’s see, Wall Street’s currently congratulating itself on a return to market index levels first reached in 2000. Thirteen years of no capital gain as one approaches age 65 is not conducive to a secure retirement. In my opinion any middle class Boomer with a large portion of his or her nest egg in stocks is playing a very risky game of financial Russian roulette. The gun may go off any day, terminating all hope of retirement, ever. Read “Why I’m Wary of Stocks” to learn more.
  • The unsustainable Medicare program will become vastly more so as Boomers begin cashing in on benefits, making cuts and premium hikes virtually assured, ratcheting up Boomers’ healthcare costs.

What Should Boomers Be Doing About Retirement?

If you’re looking at this grim reality, take heart that you have lots of company. Then consider some necessary re-strategizing.

  • Keep Earning  Probably the most effective thing you can do to help your nest egg last is to delay the day you start tapping into it. You don’t necessarily have to stick with your high stress, long hours career job. Finding something part-time that you like, that’s near home, and that you can stick with indefinitely will make a big difference in your post-career cash flow.
  • Consider Relocating  We moved to Canada in part because of the availability of guaranteed, affordable health insurance, and it’s really paid off for us. The immigration people here aren’t likely to let in a mass of retired American Boomers whose aim is to burden the taxpayer funded health care system, but still you have options. Taking into account all cost-of-living factors, look to relocate—whether in the U.S. or out—to a spot where the cost-of-living is low.
  • Don’t Gamble  Some—mainly those who would profit—will urge you to take more risk with your savings to “catch up.” Sorry, but that’s a load of crap in my opinion. Before you adopt a higher risk investment strategy, consider exactly what you’re risking: the very modest retirement lifestyle that your current nest egg could fund. If your investments get hammered by one of the now regular crashes the financial markets inflict on the little guy, what will be your options?

What’s Your Plan?

If you’re a Boomer, have the macro factors outlined above put a whuppin’ on your retirement plan? What are you doing to recover?

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  • Your Daily Finance

    I think a lot of them will end up having to keep working though most want to retire. The money just isn’t there. For a lot of them you have the problem with not enough saved and too little time to risk and recover. A lot of them move to Florida where I am because of the lower taxes. I never thought of moving to Canada. Health insurance can be costly.

    • I think you’re right–many boomers will either have to keep working or move in with the kids! Unfortunately personal health and economic conditions may not cooperate with this plan. 40 million–half, let’s say–is a lot of seniors for the U.S. economy to absorb over a decade or so.

  • Greg

    I think the keep earning piece is key. Like you mention, something that the person enjoys and keeps a steady cash flow. That said, my dad is a boomer and retired at 52. He just turned 60 and has spent the past 8 years saying that he would probably get into something. Between renovating their home, grand kids, and caring for my ailing grandmother, they haven’t had any time for that and are going strong. So, maybe it is not a requirement.

    • I think you Dad’s experience is very common. Once retired, people often become so busy there’s no room for work!

  • I guess they would need to keep earning even though they desire to retire as it is not just about money it is also about keeping yourself engaged

  • Herbert

    This is rough. Just around the time you were to retire, the economy goes kaboom. Guess the boomers have not much of an option but to keep working until their health gives out. Looking at the current unemployment rates, getting employed is tough.

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