Are Baby Boomers Ready for Retirement?

“Americans are reaching retirement age in worse financial shape than the prior generation for the first time since Harry Truman was president”, says a recent Wall Street Journal article. There are several causes but us Baby Boomers are the first generation left mostly without pensions and with the responsibility to manage our own retirement savings. So, as you can imagine, some have flourished, some have struggled and more than some aren’t quite sure how they’ve done because they’re scared to look. Where do you fall?

Recently a friend of mine who teaches at UK said she intends to come see me to learn “where they are financially,” but she was worried the news might not be so good because “she’s not very good with money.” That’s a very common fear, particularly among Boomers, and probably the main reason people don’t ask for help – they’re afraid we might tell them they’ll have to work until they’re 75 years old before they can retire. Or even worse, we might judge them and point out where they’ve gone wrong. Note: We don’t judge. Ever.

In fact, I responded to my friend that they might be surprised how well they’re actually situated. For instance, recently new clients came to us convinced they weren’t prepared properly for retirement because they hadn’t paid much attention to their investments and had no financial plan. As a first step in preparing their plan, we were able to assemble their workplace retirement accounts plus their IRAs and Roth IRAs onto one page that showed their total value. They were astonished at how much they had accumulated. As a result, our plan to nurture and protect their investment assets throughout retirement gave them wonderful peace of mind.

So, what mistakes does the Wall Street Journal say us Boomers have made to leave some of us in such precarious positions?

High Debt

Too much house and large car payments contribute to this equation but loans taken out to pay for their children’s college educations are the biggest factor. The WSJ story told of a man from Des Moines who has $100,000 saved for retirement but still owes $92,000 for his daughters’ college costs. He’s 56 and doesn’t know “when, or if, he will be able to retire, in contrast to his parents, a former firefighter and teacher who collected guaranteed pensions…who never had to worry about saving for their retirement.”

Saving Too Little

It’s not uncommon for people to put off saving for retirement. I mean, given the choice between the 70” big screen today and a finish line 40 years away, we go big, right? A slow start can be overcome but, if that habit continues through life, climbing that mountain to accumulate as much wealth as you’ll need to provide you income throughout the rest of your life is pretty daunting. Especially if you have to do it all in the last 5 or 10 years of your work life. The WSJ article said that households with a workplace retirement plan like a 401(k) or 403(b) between the ages of 55 and 64 had a median $135,000 in them. Using a standard 5% withdrawal rate per year, their annual income from these accounts will be about $6,800.

Investing Mistakes

The WSJ story also cites investing mistakes within workplace retirement plans as a culprit. Choosing investments too risky or too safe can both hurt returns over time. We’ve had clients come to us near the end of their careers who are much too aggressive in their investments but don’t realize it. Conversely, we’ve seen many in their 40’s who are invested so conservatively that achieving the compound earnings necessary to accumulate adequate wealth is severely hampered. The story cites a 61-year old man who contributed to his 401(k) for 35 years but he lost great value when the market crashed because his investments weren’t diversified. In fact, he said his savings lost half their value both in 2000 and 2008 because he was 100% invested in aggressive investments rather than a mix appropriate for him.

Take-Aways

Our generation and those behind us have great, personal responsibility to plan, save and invest for our own retirements. Plus, of course, pay for our kids’ college educations, maybe help our parents out in their later years, handle rising healthcare expenses and – oh, yeah – enjoy our lives, too. So, seek some advice and start a plan – now. You might be surprised how well you’re actually doing and I promise having a plan will provide enormous peace of mind.