published Tuesday, December 28th, 2010

Baby boomers near 65 with retirements in jeopardy


AP Personal Finance Writer

CHICAGO — Through a combination of procrastination and bad timing, many baby boomers are facing a personal finance disaster just as they’re hoping to retire.

Starting in January, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for the next 19 years.

The boomers, who in their youth revolutionized everything from music to race relations, are set to redefine retirement. But a generation that made its mark in the tumultuous 1960s now faces a crisis as it hits its own mid-60s.

“The situation is extremely serious because baby boomers have not saved very effectively for retirement and are still retiring too early,” says Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania.

There are several reasons to be concerned:

— The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute.

— Reliance on stocks in retirement plans is greater than ever; 42 percent of those workers now have 401(k)s. But the past decade has been a lost one for stocks, with the Standard & Poor’s 500 index posting total returns of just 4 percent since the beginning of 2000.

— Many retirees banked on their homes as their retirement fund. But the crash in housing prices has slashed almost a third of a typical home’s value. Now 22 percent of homeowners, or nearly 11 million people, owe more on their mortgage than their home is worth. Many are boomers.

Michael Vanatta, 61, of Vero Beach, Fla., is paying the price for being a boomer who enjoyed life without saving for the future. He put a daughter through college, but he also spent plenty of money on indulgences like dining out and the latest electronic gadgets.

Vanatta was laid off last January from his $100,000-a-year job as a sales executive for a turf company. And with savings of just $5,000, he’s on a budget for the first time. In April, he will start taking Social Security at age 62.

“If I’d been smarter and planned and had the bucks, I’d wait until 70,” says Vanatta, who is divorced and rents an apartment. “It’s my fault. For years I was making plenty of money and spending plenty of money.”

Vanatta is in the majority. Some 51 percent of early boomer households, headed by those ages 55 to 64, face a retirement with lower living standards, according to a 2009 study by the Center for Retirement Research at Boston College.

Too many boomers have ignored or underestimated the worsening outlook for their finances, says Jean Setzfand, director of financial security for AARP, the group that represents Americans over age 50. By far the greatest shortcoming has been a failure to save. The personal savings rate — the amount of disposable income unspent — averaged close to 10 percent in the 1970s and ‘80s. By late 2007, the rate had sunk to negative 1 percent.

The recession has helped improve the savings rate — it’s now back above 5 percent. Yet typical boomers are still woefully short on retirement savings. Even those in their 50s and 60s with a 401(k) for at least six years had an average balance of less than $150,000 at the end of 2009, according to EBRI.

Signs of coming trouble are visible on several other fronts, too:

— Mortgage Debt. Nearly two in three people age 55 to 64 had a mortgage in 2007, with a median debt of $85,000.

— Social Security. Nearly 3 out of 4 people file to claim Social Security benefits as soon as they’re eligible at age 62. That locks them in at a much lower amount than they would get if they waited.

The monthly checks are about 25 percent less if you retire at 62 instead of full retirement age, which is 66 for those born from 1943 to 1954. If you wait until 70, your check can be 75 to 80 percent more than at 62. So, a boomer who claimed a $1,200 monthly benefit in 2008 at age 62 could have received about $2,000 by holding off until 70.

— Medical Costs. Health care expenses are soaring, and the availability of retiree benefits is declining.

“People cannot fathom how much money will be needed to simply cover out-of-pocket medical care costs,” says Mitchell of the University of Pennsylvania.

A 55-year-old man with typical drug expenses needs to have about $187,000 just to cover future medical costs. That’s if he wants to be 90 percent certain to have enough money to supplement Medicare coverage in retirement, according to the Employee Benefit Research Institute. Because of greater longevity, a 65-year-old woman would need even more to cover her health insurance premiums and out-of-pocket health expenses: an estimated $213,000.

— Employment. Boomers both need and want to work longer than previous generations. But unemployment is near 10 percent, and many have lost their jobs.

The average unemployment period for those 55 and older was 45 weeks in November. That’s 12 weeks longer than for younger job-seekers. It’s also more than double the 20-week period this group faced at the beginning of the recession in December 2007.

If financial neglect turns out to be many boomers’ undoing, challenging circumstances are stymieing others.

Linda Reaves of Silver Spring, Md., never had much opportunity to save as a single mother raising two sons and a daughter. After holding a variety of positions over the years — hotel office manager, research analyst for a mortgage company, hospital mental health counselor — she was still living paycheck to paycheck. Then she was laid off in 2007 at the age of 57.

She entered a training program to learn new skills, but all she has found since is a string of temporary jobs. In her daily quest for clerical or administrative work, she competes against much younger applicants.

Reaves, who turns 60 this month, plans to work until she’s at least 70 and then wants to travel, even if she doesn’t know where the money will come from.

“I just keep going. I don’t really worry about it,” she says.

Add this all up, and there’s a “slow-burning” retirement crisis for boomers, says Anthony Webb, a research economist at the Center for Retirement Research.

“If you have a crisis where the adverse consequences are immediately clear, then people understand that they have to do something,” Webb says. “When the consequences will be felt 20 or 30 years in the future, the temptation is that we kick the can down the road.”

As a result, he believes many won’t change their behavior.

For less affluent boomers, it won’t take that long to feel the pain of poor planning. Concerns about financial trouble will hang over many of those 65th birthday celebrations in 2011.

Many seem to view their plight through rose-colored granny glasses. An AARP survey last month of boomers turning 65 next year found that they worry no more about money than they did at age 60 — before the recession or the collapse of home prices. But in an acknowledgement of reality, 40 percent said they plan to work “until I drop.”

* * *

5 ways boomers can reduce retirement shortfall


AP Personal Finance Writer

As Theodore Roosevelt once said: “Old age is like everything else. To make a success of it, you’ve got to start young.” But it’s not too late for baby boomers who put off retirement planning and haven’t saved enough. Here are five key steps:

— HAVE A PLAN: Educate yourself about your complete financial picture and your options. You don’t have to obsess about reaching The Number — the amount a financial adviser or retirement calculator says you’ll need to retire comfortably. But having an idea of your expected monthly income and expenses in retirement is essential. Many financial sites offer retirement calculators; AARP has a newly revamped one at—nest—egg—calculator.html .

— SAVE MORE: Set savings goals you can reach, step by step. If you’re still working, allocate any money from raises to retirement savings. Increase your 401(k) contribution by 1 percent increments every few months so you adjust better to having less to spend.

— RETIRE LATER: Working longer doesn’t mean you have to save every extra penny. A key benefit of this approach is that it allows your existing savings additional time to grow, so you may be able to spend more on leisure during those years while you’re still healthy and active.

— SCALE BACK YOUR LIFESTYLE: Recognize that you’ll need to make compromises to reach your goals. That could mean having one less car, eating out less often or any number of other cutbacks. Consuming less will take an adjustment but doesn’t have to make you miserable. Staycations can be fun, and you can stay engaged and active through social relationships or volunteering. Just be sure you don’t cut back so drastically that you fail to stick with it.

— DELAY TAKING SOCIAL SECURITY: If you file for Social Security benefits as soon as you’re eligible at age 62, your payments are reduced by about 30 percent from what they would be at full retirement age. (See to find out your full retirement age, which is 66 to 67 depending on birth year.) After full retirement age, the monthly check increases by 8 percent for each additional year you delay up to age 70.

“If you start collecting sooner and live longer than your life expectancy, you’re in greater danger of running out of money,” says David Mendels, a certified financial planner with Creative Financial Concepts in New York City.



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mymy said...

"Generation Zero" Here's just one review

December 28, 2010 at 1:22 p.m.
OldTimer1933 said...

I wonder why there was no mention of 'government sector' retirement plans?

December 28, 2010 at 1:40 p.m.
jpo3136 said...

Many boomers aren't choosing retirement, they're being pushed into it by their profiteering peers who use "early retirement" as a social excuse for "fired, without hope of a new job."

In practice, a lot of these boomers' retirement funds are built on gambling.

The proceeds of which have been outright stolen from them, under a mask of lies.

Of those losses in gambling, many, many dollars are lost each quarter by raiding peers. The workers are either neglected as a form of padding statistics, or outright abused by others looking out for themselves first.

I have seen boomers before me lose enough money in one year after retirement to buy a mid-sized house.

People don't suddenly lose that much money with diversified investments for no reason.

The reality of our entire economy has been that some people have been so selfish as to market outright frauds and fictions as an excuse of a substitute for rational, ethical business practices.

Many people retiring or retired are comfortable because they have outright failed to engage in legal, lawful and ethical business practices.

There's just been so much fraud on Wall Street that we can't type up a list of all the charges.

Our nation's financiers have made it common practice to hide behind invented terms to push fictitious definitions down to customers as part outright tricking them into believing a pack of empty promises.

They call this "the market regulating itself." Well, look around. By the time the market determines that these quasi-criminal practices need to be stopped, millions are out of work and homes and with little recourse to defend themselves.

I'm surprised that this story about how baby boomers were retiring with inadequate resources failed to address the leading and most obvious cause of financial hardship in the United States today: lying.

Lying about money costs people more wasted money and effort than any other factor in our markets today.

It doesn't take a great deal of sophistication to see that many of these boomers who have worked and saved their whole lives lost a year's wages in one day not through their own decisions about the specifics of those monies; no, those kinds of losses are sustained by trusting people who lie to us about money.

Many of these boomers are unprepared for retirement, and have ruined the economy for a great many other people, because we have been beset upon by lying thieves.

They'll get away with it, but that doesn't make it right.

Lies: the leading cause of boomer unpreparedness for grocery shopping.

December 28, 2010 at 4:16 p.m.
jpo3136 said...

How many retirement packages have you seen which repeatedly warn their participants, "Every day you use this 401K, you could lose it all?" It doesn't happen.

The people who were doing the using were betting on the idea that the average worker would just shut up and go along and be slow to react to market fluctuations.

Take day trading, for example. What's so special about day trading that it requires tens of thousands of dollars?

Arguably, day trader responsiveness is what would be needed for every single person to have a fair chance at safeguarding their own assets.

What happens? The average person using a 401K flat out doesn't get that kind of responsiveness. Why? Because it is profitable to slow down the bulk of people trading in the market so that the fast (and rich) can buy their way into some inflated profit margins.

Trying to tell the general public that they should have saved more sooner, when they were fired at 58: it's a weak alternative to the truth.

The truth is, many of these people were fired as soon as it looked remotely excusable to put them under the blanket of Social Security.

Meanwhile, we know that Social Security was only designed to keep the last 20% of a generation's survivor's alive. Yet, the boomers had it marketed to them that if they retired at such and such an age, everything would be fine. One look at the math has made it obvious and observable for decades that this would not be the case; well, it's here now, and everything is not, in practice alright.

It's just wrong to tell people to save their pennies when their meager efforts at saving were funneling into gambling 401Ks. Why did so many workers do this? Because they were told to do so, and many people were doing it. One person can't fight a tidal wave.

Even if these workers save 10% of their income, then that means for every decade of their career, in an economy with no inflation (ha!), they would still be able to retire on their liquid savings for only one year's worth of consumable and emergency spending.

That's just not realistic.

The real damage to their financial plans is that people will not hire the old. We're prejudiced. How many boomers have had to sign compensation agreements specifically stating that they wouldn't sue over age discrimination? It's common. I know of several people in this area who have had such disgusting contracts put before them by our own neighbors in this city. It happens right here.

Overall, while saving up is good advice, the article above neglects to address so many strong and obvious factors which have really attacked common people who were going about their daily business of trying to survive: well, the story is just wrong. It's imbalanced to the point of fantasy.

It's just not reasonable or right to tell these boomers they should have used their piggy bank.

I categorically disagree with the entire article on principle.

December 28, 2010 at 5:03 p.m.
mymy said...

Generation Zero Movie Opinion “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world's greatest civilizations from the beginning of history has been about 200 years.

During those 200 years, these nations always progressed through the following sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to complacency; from complacency to apathy; from apathy to dependence; from dependence back into bondage.”

Sound familiar

December 28, 2010 at 5:21 p.m.
mymy said...

It is certainly true, however, that boomer politicians made the problem worse--much worse. The dramatic expansion of home mortgages, including subprime mortgages to unqualified buyers, was a bipartisan cause in the 90s and the 00s. And the 1999 repeal of the Glass Steagall Act, for example, which allowed Wall Street to gamble with bank depositors’ money for the first time since the early 30s, was signed into law by a boomer president, Bill Clinton. And George W. Bush and Barack Obama, two big-spending presidents, were also boomers--together with much of Congress.

As “Generation Zero” reminds us, our fate is in our hands. We can learn from our mistakes, we can change our fate, we can save our country.

If we want to.

December 28, 2010 at 5:22 p.m.
jpo3136 said...

The real damage to boomer retirement is that the managers have to choose: who to save?

There won't be another opportunity. We don't hire hundreds of old people. We speculate on the young. From student loans to divorce proceedings, we're betting on young people who will mess up many, many times in the future.

Just by being old, the old have fewer chances to give to the market to exploit them. So, they're told to shut up and draw a check that's just enough to buy some groceries, if they're lucky.

Eventually, we warehouse them in some small apartment. It's probably about the size of a few rooms of whatever residence they had when they were profitable to raiders and writers of retirement fictions.

These boomers are being shoved out to pasture on a plan design to support only the last 20% of survivors, when it's clear that we're pushing over 50% of the survivors into it.

The alternative? Hire old people.

Look around. Who is doing that? Nope. Twitter and Facebook are worth untold millions, for no apparent reason. Meanwhile old people are seen as just one liability.

Wake up. Survivors use an equity based economy. We put our paychecks, when we can get one, in the "Equity" column. Assets plus Liabilities equals Owner's Equity.

Put the paycheck in Equity, subtract this month's bills in Liabilities: the $20 that's left goes in Assets.

Then, these guys get ripped off, millions of people at a time, with bulk theft. Bulk theft. Contracts which have been illegal in concept since the Great Depression: used as standard business agreements. The person to pay the price? Our own old people.

Our own old people! Right here in Hamilton County. What are they going to do? Does anyone thing they are going to work on the factory line at VW or Amazon for 30% of what someone should earn after 30, 40, 50 years of working?

And the AP is telling these guys to save their pennies beginning back in 1968.

Well, thanks.

I'll stop writing now, but I just think it's this sort of simplistic, monumentally inept financial advice, embodied by the article above, that got us into this mess.

The same rhetorical cause is in that story as has been in our marketplace troubles: sins of omission.

The story omits to tell us the truth about important balancing factors. Instead, we're directed to focus on some simplistic fantasy that's supposed to look like the right advice to Elementary school students.

Baby boomer retirements are in jeopardy because those people were misled, often by their peers and superiors; they were raided; and, many of the decisions were not only not understood by the individual workers, they weren't given a chance to make them.

That's what I think happened. I think the AP has it wrong here.

Using the piggy bank since Elvis and The Beatles would not have fixed everything for all of these people.

December 28, 2010 at 5:26 p.m.
Reardon said...

The best thing I've ever learned as a 26 year-old is that neither I, nor anybody else, owes me sh*t, and no one's responsible for myself except me.

December 28, 2010 at 8:47 p.m.
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