Baby boomers near 65 with retirements in jeopardy

[ray245]

CHICAGO (AP) -- 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 in Washington, D.C.

-- 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 the 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, the EBRI said. 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."

http://finance.yahoo.com/news/Baby-boom ... 11409.html

[Norade]

I feel sort of bad for them, but honestly many of them simply have it coming and needed to save some damned money. Banking on your 401(k)s growing or thinking your house would allow you to retire nicely was foolish. Sadly the younger generation gets to bear the cost for this though.

[Highlord Laan]

My only response is "cry me a fucking river." They're the ones that have been passing the buck for forty years, and now it's biting them in the ass.

Cut some more taxes, maybe that'll improve the economy. /sarcasm

[aieeegrunt]

Given the extent to which that generation fucked up the entire world, I'd say this is poetic justice. Seriously, look at the state of the environment, the economy, the list goes on and on.

[JME2]

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.

...I know this is a Baby Boomer we're talking about, but how in the holy fuck can you only have 5 grand in savings?

Anyway, given that their collective greed and shortsightedness have played a large role in our current economic quagmire, I'm not feeling particularly sympathetic at the moment.

[The Grim Squeaker]

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.

...I know this is a Baby Boomer we're talking about, but how in the holy fuck can you only have 5 grand in savings?

Anyway, given that their collective greed and shortsightedness have played a large role in our current economic quagmire, I'm not feeling particularly sympathetic at the moment.

The appropiate question is - how the fuck do you have only 5,000$ in savings after years of a 100,000$ job! (Seriously, that's insane. In my country that's firmly in the top 1%)

[Jaevric]

The appropiate question is - how the fuck do you have only 5,000$ in savings after years of a 100,000$ job! (Seriously, that's insane. In my country that's firmly in the top 1%)

In the United States $100,000.00/yr is middle class to upper-middle class. And middle class Americans have bought into the idea that we can spend our way to prosperity. Saving money is bad because if we spend money we stimulate the economy, which in turn creates more wealth. Debt is okay because the economy will always improve and, once again, spending money creates wealth. Tax cuts on the rich are good because they turn around and spend the money which creates more wealth which will magically end up in the pockets of middle-class Americans, allowing them to pay off their debts and maintain their lifestyles.

The housing bubble collapse is another issue -- a lot of people believed the housing market in the United States would continuously improve. We (meaning Americans, not me personally) used our mortgages as a "savings" fund -- buy the biggest house you can afford, keep paying on it, and when you're ready to retire you can sell the house. The problem, of course, is that people refinanced their properties (I work in the mortgage industry, one of my managers who had started out in the loan origination side claimed that the average home loan got refinanced after 3-5 years, during which time most of the money people paid was going towards interest!) to pay off other debt or to get cash out of the property to pay for cars, college, medical problems, etc. Homeowners stayed fat, dumb and happy because every time they refinanced the house they were told it's worth more. Banks were willing to loan money because, after all, home values are still increasing, so if the person defaults the bank won't take much or any loss when it sells the property, right? Right?

Then the housing bubble popped, and many people's houses aren't worth as much as they owe on them after the last round of refinancing. The "savings fund" is gone -- the banks might agree to write off the difference if people sell the house now (a short sale) but sure as hell the "homeowner" won't be walking away with any money, except perhaps "cash for keys" so they can get into an apartment or rental house. The situation is particularly bad in areas like Florida, Nevada, Arizona, and California -- which also have high unemployment rates. Middle-class America is paying the price for the last 30+ years of "trickle-down economics," and we're still chugging that kool-aid because we won't listen to anyone who tells us it's not working -- this is America, the greatest country in the world, which can do no wrong. And we're Americans, which means we can do no wrong either, and everything will work out in the end because of God and Ronald Reagan.

[Zed]

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.

...I know this is a Baby Boomer we're talking about, but how in the holy fuck can you only have 5 grand in savings?

Anyway, given that their collective greed and shortsightedness have played a large role in our current economic quagmire, I'm not feeling particularly sympathetic at the moment.

The appropiate question is - how the fuck do you have only 5,000$ in savings after years of a 100,000$ job! (Seriously, that's insane. In my country that's firmly in the top 1%)

It's because he didn't cut spending enough.

[Serafina]

Seriously - i had MORE than 5000$ in savings at the age of just 19! (about 8000€ to be precise). I am paying into a retirement plan right now, and i am currently on unemployment benefits (which is also why i don't have those savings any more).

If you have so little savings after years of well-paid work, you are just utterly incompetent.

[General Zod]

If you have so little savings after years of well-paid work, you are just utterly incompetent.

That's a rather unfair generalization. It's hard to feel sympathetic for some of the guys in the op, but things like medical bills can drain your life savings rather easily. I wouldn't be so quick to paint everyone with the same brush like that.

[[R_H]]

If you have so little savings after years of well-paid work, you are just utterly incompetent.

That's a rather unfair generalization. It's hard to feel sympathetic for some of the guys in the op, but things like medical bills can drain your life savings rather easily. I wouldn't be so quick to paint everyone with the same brush like that.

He was earning 100K a year though.

[General Zod]

If you have so little savings after years of well-paid work, you are just utterly incompetent.

That's a rather unfair generalization. It's hard to feel sympathetic for some of the guys in the op, but things like medical bills can drain your life savings rather easily. I wouldn't be so quick to paint everyone with the same brush like that.

He was earning 100K a year though.

So what? That doesn't have anything to do with my point.

[Jaevric]

[R_H]: Yeah, but he's American. Depending on how good his health insurance is, medical bills can eat up a LOT of money. Admittedly, there's no information suggesting it applies in this case, but if he's got one (or more) seriously ill family members I can easily see him having a hard time accumulating savings even with that kind of salary. Of course, I'd've expected the article to mention something like that if it was the case, so chances are the "he can't manage his money" theory is more likely to be correct.

[General Zod]

[R_H]: Yeah, but he's American. Depending on how good his health insurance is, medical bills can eat up a LOT of money. Admittedly, there's no information suggesting it applies in this case, but if he's got one (or more) seriously ill family members I can easily see him having a hard time accumulating savings even with that kind of salary. Of course, I'd've expected the article to mention something like that if it was the case, so chances are the "he can't manage his money" theory is more likely to be correct.

I was more objecting to the claim that anyone with less than $5,000 in savings who has a high paying job is somehow universally incompetent, I don't care about the specific case in the article. Especially considering medical debt accounts for a sizable majority of American bankruptcies.

[Serafina]

If you have so little savings after years of well-paid work, you are just utterly incompetent.

That's a rather unfair generalization. It's hard to feel sympathetic for some of the guys in the op, but things like medical bills can drain your life savings rather easily. I wouldn't be so quick to paint everyone with the same brush like that.

Okay, that's a fair point.
However, in that case, you were still smart enough to actually SAVE money. You just were unlucky and had to spent it on something unexpected. This guy apparently was not smart enough to save any money in the first place, which is what i am condemning here. I generally don't have that much money (due to being factually unemployed), but even i try to save some money, even tough that might actually cut in my budget for near-essential things.

Really, i know that there is a huge cultural difference regarding saving money between Germany and the USA - but this just strikes me as utterly careless even if we account for that. This guy worked for at least 30 years and he only saved 5000$ - that's less than 200$ per year! I am saving about half of that per year, and i am on unemployment benefits and still have to spend a lot of money on essentials (e.g., i was short on warm clothes this winter, i still am short on kitchen equipment and the like). And that just counts the long-term savings, not the short term "something might come up where i need extra money because something broke"-savings.

I know the "earn a lot, spend a lot"-attitude: It's typical for people who can't handle money. It's one thing to not have savings if you never had money that you could save - if you are spending all on housing, food, clothes, education etc. It's one thing to get your savings destroyed by something unexpected (happened to me too). It's still okay if you are not a smart shopper and don't bother with that extra 5%-discount on your new TV.
But this guy (and presumably a good amount of others) simply failed to understand the value of money - or perhaps the necessity of having money. I generally say that such people view money as a luxury, rather than a true necessity (they might think their luxuries are necessary, of course ). That's an attitude you can find in many children as well - their pocket money is there for pure luxuries, they don't have to form a budget with it. You can easily maintain such an attitude if you get a good job - you don't have to worry about not being able to pay for your essentials, so the money you earn get's perceived as buying you luxury - a better car, a better house, going to fancy events, amazing holidays and the like. That's quite different from someoned for whom money means being able to pay the bills, having something other than canned food, potatoes and rice around or to be able to buy another piece of warm clothing.

The point is that the former view (money as a luxury) is often blind to seeing money as a necessity. This is why it doesn't get saved, because they fail to grasp that they will NEED it later in their life when they are retired.
Handling money is all about forming budgets - not earning it. Some people never learned that, and people who don't save for the future despite being able to clearly didn't. Given how crucial money is in our society, they just fail at a very essential skill.


Edit: You don't have to be poor in order to learn how to handle money. It's something that can and should be teached to children - that's one the functions of pocket money after all. The important thing is to make sure that their pocket money isn't solely spent leisurly, and that some sort of plan is put behind it.

[General Zod]

Okay, that's a fair point.
However, in that case, you were still smart enough to actually SAVE money. You just were unlucky and had to spent it on something unexpected. This guy apparently was not smart enough to save any money in the first place, which is what i am condemning here. I generally don't have that much money (due to being factually unemployed), but even i try to save some money, even tough that might actually cut in my budget for near-essential things.

Like I said earlier, I don't really care about the guy in the op. It seems it's his own fault there. It's just the rather quick generalization that bugs me.

[Serafina]

I wanted to emphasize the fact that money handling skills are important, and that saving your money is a vital part of that.
If you get unlucky and have to spend your savings, that has nothing to do with your ability to handle money. If you can't get a good job, you didn't fail at money-handling either (you are merely bad at getting a job, or have bad luck).
But if you have plenty of money and don't save any of it, you are making a very crucial error.

[General Zod]

I wanted to emphasize the fact that money handling skills are important, and that saving your money is a vital part of that.
If you get unlucky and have to spend your savings, that has nothing to do with your ability to handle money. If you can't get a good job, you didn't fail at money-handling either (you are merely bad at getting a job, or have bad luck).
But if you have plenty of money and don't save any of it, you are making a very crucial error.

That's a bit different from saying "no money left after years of work = incompetent", but it is more reasonable.

[Serafina]

Yes, my original statement was a bit too broad, i readily admit that.

[mr friendly guy]

Australian financial "guru" Noel Whittaker told a story about a man he met, (whether its true its another matter, but it seems plausible). The man was a self proclaimed "high flyer" who spent his money on the high life, eg parties, expensive apartment etc. Unfortunately for him he had a nervous breakdown and is now dirt poor. He lamented that if he had simply saved a bit of money he would have still been able to live a comparable life now as he did then (plausible depending on how many years he worked with this high income).

Generally people advise saving 10% of the take home pay. In regards to the man in the article, he may not necessarily have a 100 K job for most of his working life, and maybe only reached it at the end of his career. Nevertheless, if he is earning 100 k for the previous year, ideally he should have saved roughly close $10 k (although I am unsure how taxes work out in the US). I share the incredulity that this guy hasn't saved, and in the absence of any mitigating factors like medical bills (the article makes no mention of such), then really its his own bloody fault. And whats worse, its the younger generation that bears the cost.

I advise reading the book "The millionaire next door" about surveys done on American millionaires. As the title suggests these guys are likely inconspicuous, and most of them simply just budgeted and saved. Its very illuminating and serves as warning we should save for a rainy day. Too bad these guys didn't listen.

[Raw Shark]

In regards to the man in the article, he may not necessarily have a 100 K job for most of his working life, and maybe only reached it at the end of his career. Nevertheless, if he is earning 100 k for the previous year, ideally he should have saved roughly close $10 k (although I am unsure how taxes work out in the US). I share the incredulity that this guy hasn't saved, and in the absence of any mitigating factors like medical bills (the article makes no mention of such), then really its his own bloody fault. And whats worse, its the younger generation that bears the cost.

Taxes are kind of a lot in the US until you get up to about twice that much income, but even the guy in the article admits that it's his own fault for eating out a lot instead of saving.

As a self-employed individual, I pay more than the average wage slave in taxes and eat a lot of beans and rice. I aspire to stop living hand-to-mouth and create some kind of emergency fund, rather than just assigning myself extra hours every time there's some kind of crisis.

[bobalot]

My only response is "cry me a fucking river." They're the ones that have been passing the buck for forty years, and now it's biting them in the ass.

Cut some more taxes, maybe that'll improve the economy. /sarcasm

I'm in Australia, I broadly share your sentiment. This lousy generation skimped on building infrastructure, investing in education and gave themselves tax cuts. The majority of the Boomer's supported this agenda. These same people have given themselves generous pensions and aged care support while at the same whining about any money going to anybody/anything else (infrastructure, education, poor people, etc).

[The Kernel]

Generally people advise saving 10% of the take home pay.

You need to save a lot more than that if you want to have any sort of reasonable retirement.

I personally max my 401k contributions up to the allowable $16k a year and even with an employer match it only works out to around $20k a year of savings in my 401k. Multiply that by 35 years of working and it still only works out to $700k of savings which really doesn't cut it if you want to have a comfortable retirement. Even if I assume my spouse can save an equal amount (dubious since she might want to take a couple years off for child rearing and may not get a job with a 401k match) and you are still only looking at $1.4 million in 2010 dollars. Not pocket change, but hardly rich living when you think about increased medical care costs associated with being older.

Of course there are a lot of variables that go into this (such as how much growth I see versus inflation) but assuming a decent growth my spouse and I should really only expect about $2 million in 2010 equivalent savings when we retire.

Assuming we manage to pay off our home and have no major other crisis which drains our savings prematurely we would be looking at the following income at retirement in 2010 adjusted figures:

Social Security: ~$36,000 a year combined (net)
401k Distributions: $65,000 a year combined (net, assuming 35% tax rate and a 5% disbursement rate)

The totals from this come out to around $100k. Sounds like a lot but it's really not since we've been collectively making $250k throughout our careers combined to get to this point and even though we don't have house payments anymore, we still have property taxes and such to deal with. We could draw down our 401k savings faster but that would leave us with the possibility of taking a serious hit to our income later in life.

Really even if you manage to max your 401k, you still need to invest in equity in your house (which you can't sell because you need to depend on the rent-free living) AND you will need to provide additional savings on top of this. I'm assuming we are both going to also save an additional 5-10% of our net income but this is not pre-tax so it'll have to go into a ROTH-IRA or something similar. Sure no taxes at distribution but it takes a big chunk out of your take home.

Really the only thing that gives me hope of maintaining a decent lifestyle in retirement is the fact that my salary is increasing much faster than inflation because I'm moving up the corporate ladder. If this wasn't the case I would essentially be stuck with the above--comfortable but too close to the edge with not enough safety net.

[mr friendly guy]

Generally people advise saving 10% of the take home pay.

You need to save a lot more than that if you want to have any sort of reasonable retirement.

IIRC the 10% figure was quoted for an Australian audience. I generally save more than that, but the 10% may be reasonable given some differences. For example

1. Our health system will cover you for medical bills. Those expensive chemotherapy drugs, taken care of. That lipitor, plavix and ikorel you need for your heart, government subsidised (which is why I get irked when people complain that they can't afford the drugs so they don't take them. Its dirt cheap because of government subsidies).

2. The average Australian most probably isn't earning close to what you are earning. The average American isn't either if I look at GDP by PPP / capital, thus they might not need so much.

3. We do have a good social safety net. Maybe too much, but as a rule a social safety net tends to promote spending rather than saving.

4. I believe the 10% of savings isn't counting Superannuation (which I assume is our equivalent to your 401k).

I personally max my 401k contributions up to the allowable $16k a year and even with an employer match it only works out to around $20k a year of savings in my 401k. Multiply that by 35 years of working and it still only works out to $700k of savings which really doesn't cut it if you want to have a comfortable retirement. Even if I assume my spouse can save an equal amount (dubious since she might want to take a couple years off for child rearing and may not get a job with a 401k match) and you are still only looking at $1.4 million in 2010 dollars. Not pocket change, but hardly rich living when you think about increased medical care costs associated with being older.

Hmm. There is clearly a difference in the situations between countries, and what I said may not necessarily be applicable to the Americans perusing this thread (although I stil stand by recommending reading "The millionaire next door", because the financial principles are universal). For example our financial experts don't recommend us increasing our Super (401k equivalent) unless

a) You are damn rich, like celebrity rich. The reason being you can't touch it for ages and the rules may change by the time you retire. The reason its good for rich people to do it, is because of tax reasons, and they don't need that much money right now.

b) You are poor - because for a while the government will provide extra contributions.

As said earlier, we most probably don't need as much because most of our medical costs are taken care of.

Really the only thing that gives me hope of maintaining a decent lifestyle in retirement is the fact that my salary is increasing much faster than inflation because I'm moving up the corporate ladder. If this wasn't the case I would essentially be stuck with the above--comfortable but too close to the edge with not enough safety net.

I am going to have to look up the calculator for things retirement income, to work out how much I need. As a general rule, I don't utilise the maxing out of our 401k equivalent. My Superannuation currently stands at a bit less than $59 K AUD after having worked full time since 2004 (oh, we apparently have more than parity with the Greenback). I however prefer the extra money to either a) pay off my homeloan and b) invest it myself rather than get an "expert" to do it. Give me a year and see if I can beat the experts on the stockmarket.

[mr friendly guy]

Also in regard to what constitutes a reasonable retirement, I am not sure if your retirement income needs to match current income. The reason being with current income you are saving, once you retire you aren't. So you should only try to match spending.

In any event, I am hoping to do what the controversial American financial "guru" Robert Kiyosaki advocates. Have enough assets such that the assets generate a sufficient income for you to live on. Currently since I am young I am focussing on growth assets, when I get older I will no doubt switch to income producing ones.