Baby Boomer retirement - How big of a disaster?

Great Debates
1

The oldest of the Baby Boom generation are getting close to retirement, and some serious issues are needing to be addressed.

Current retirees generally have some sort of company provided pension, social security, and personal savings to make it through their retirement years. In addition, until recently, a large percentage of people in their 60’s owned their homes outright. Those without these resources relied on family to provide for them.

Compare to today -

Personal savings rates are negative - almost -2%. We are saving nothing.

Pensions are, for most people, non-existent, and retirement savings are dismal.
*Only half of U.S. workers participate in employer-sponsored retirement plans, and 80 percent of small business employees have no plan at all. Nearly 40 percent of all households have no retirement savings accounts of any kind beyond Social Security. Half of the households headed by a worker aged 55 to 59 have $10,000 or less in a 401(k) or in an IRA. Of that age group, 36 percent have no 401(k) or IRA savings.

For single women, the problem is even worse. Only 38 percent have 401(k) plans from a past or current job, with a median balance of just $8,000, as opposed to married females, who participate at a 54 percent rate with a median balance of $27,000.*

On top of that, many people have been using their homes to supplement their incomes, trading one 30 year loan for another. I haven’t been able to find a cite that gives an average number of years left on mortgages for people 50+. but I’m sure it is high, and much higher than in the past. A large number of people are approaching retirement age with no savings of any kind and a house payment that social security won’t even cover. Reverse mortgages are a possibility, since many do have substantial equity in their homes, but simple supply and demand dictates that the more people that go this route, the faster home prices will drop. As an aside, who is going to buy all these McMansions anyway?

Family will help for many, but it is not like it was in the old days. Children don’t stay close to home, they scatter to all corners of the globe, and many don’t have the time or resources to care for an elderly parent.

Those are just the issues of the retirees - what is going to happen when these poor people stop consuming all the goods and services we make? They aren’t going to be buying new cars every couple of years like they used to.

I am not even taking into account the solvency of Social Security itself.

I see nothing good about this situation we are facing. I seriously think we could see an epidemic of senior suicides in the near future.

Thoughts?

2

Well, when we Boomers retire in numbers, it will change a lot of stuff. Somethings for the better some for the worse.

(No matter what you think, remember the situation in Europe will be worse than in the US and in Japan the worst of all.)

These populations are moving from the wealth-creating years to the wealth-consuming ones. Certainly faults in obscure accounting rules will be revealed as pension schemes go belly-up. Social Security will have lots of troubles.

Those of us who live by our own devices will sell equities by the basketload. As a practical matter that means lots and lots of stock will go on the market, probably driving the price down. Even if it does not go down these stocks, the ownership of American companies, will be transfered to the next generation of Americans, and foreigners.

To say that another way, someone has to buy American corporations, and since there will be (a few) fewer Americans, that stuff will go overseas.

Of course by that time I will no longer give too much of a damn.

3

The so-called lack of savings amongst us is somewhat misleading. I believe the number is usually based on bank account savings. It does not include the dollars in various 401K and other retirement plans.

4

I was born in 47.

I went to school in Quonset huts most years.

Most of my school books were paperbacks, new editions of new books.

The free driver’s education program became a fee program, the year after I took it. (A local program.)

Two programs for job placement for veterans stopped the year before I was discharged.

GI business loans stopped a year before I qualified to get one.

The legendary GI Bill for education was extensively revamped the year I was first eligible, and income limits appeared shortly thereafter, followed by other limits over the next few years.

Availability of Veterans medical benefits was sharply curtailed during the first decade after I was discharged. Actual services, although not denied in theory were available only at certain location, of which there were perhaps fifty, in the entire country.

Every broad application social service system that has ever existed has broken down when I became eligible, for my entire life. I don’t expect to retire. I expect to work until I am absolutely disabled, and probably dead.

I don’t mind. I certainly think the next generation is in for a rude shock, though. There is no such thing as long term planning in our government, unless you define long term as a year after the next election. There won’t be any money. There will be a huge, and growing debt, and enough inflation to manage the flow of dollars in and out, but the effective buying power of the payout will be low enough that durable goods would be a better investment than the taxes paid.

Tris

5

From a UK perspective, the older generation have a heck of a lot of equity in their houses, and the younger generation are paying a large chunk of their income on mortgages.
Precisely where the money for the mortgages is coming from is a bit of a mystery to me.

People have seen that ‘saving’ as in buying shares and investing in pension funds is a pretty risky business. ‘Saving’ is rather a difficult thing to measure, during the 1970’s one of the big questions in UK Economics was the reason for an abrupt downturn in the savings ratio. It turned out to be a statistical error.

‘Saving’ as in investment is a bit of a problem. There is a limited number of investment opportunities - eg: it is a bit pointless building factories when there is no demand for their output. Buying shares or depositing money in banks/institutions that buy shares or lend to companies simply pushes up the price of assets. After a point, financial saving does not make much difference to physical output, either now or in the future.

On a crude level in a closed economy, there are two types of people, those who work and consume and those who don’t work and consume. Regardless of ownership of assets, it is pretty clear that the ‘workers’ are supporting the ‘non-workers’.

In the USA and the UK the ‘workers’ are being supplemented by immigration, I’m not convinced that this is a very good idea, it can lead to social problems.

On the plus side labour is steadily getting more productive, so the problem might not be physical, it could simply be one of distribution. The Grey Vote.

6

My retirement plan is “a handful of sleeping pills and a razor blade.”

7

They’ll be renovated and divided up into condos or at the very least, split into duplexes.

8

Well, I’ve got think that a lot of us have made our own beds, myself included. I’m going to be 53 in a couple of weeks. I wasn’t disciplined with my money when I was younger, and the outfit I’ve been mostly working for over the past 20 years didn’t even have a 401(k) plan, much less a pension scheme, until about 1996, so I didn’t really start saving until about 10 years ago. I’ve currently got about $40K in savings which, while above the average cited by the OP, is pretty much a drop in the bucket. If everything goes right, my savings realistically are likely to total no more than $70-85K by age 65. I’m buying a modest house within the next couple of months, which will put me about halfway through the mortgage term when I reach ‘retirement’ age, and thus leave some possibility of paying it off at that point.

Like others have mentioned, however, I have no realistic expectation of actually retiring around age 65. Firstly, all the above assumes that I maintain my current position and income straight through to retirement, a questionable assumption in this culture that more and more seems to want to throw away all its workers above the age of 50. Even if all goes well, I don’t currently see any scenario, except an early demise, that would allow me to live comfortably on SS alone, or on a combination of SS and my retirement savings. I’m not complaining, however; as I said at the outset, it’s in part my own damn fault.

OTOH, what I will complain about is the somewhat shitty situation my parents were left in. My father paid into a classic big-industry pension scheme, with lifetime medical benefits, while slaving away for close to thirty years, then was more or less forced into an early retirement by layoffs. When he died, his pension, which now goes to my mother, was cut in half, and soon afterward the company he had worked for went bankrupt, and everyone on company pensions was unceremoniously dumped out of their ‘lifetime’ medical plans. Currently her kids, myself included, kick in a bit each month to keep her from having to live on cat food, but it was a real wake-up call. I’ve always been single and there won’t be any kids to bail me out, so I’d better be at least a little smart with my money over the next few years.

What have learned from all this? I tell everyone who will listen that you’ve got to start saving as soon as you start working, that you should save as much as you can afford, and that you should control your retirement investments.

OK, I’ll stop rambling now.

9

I agree, the baby boom generation is facing a retirement crisis. We can’t use our parents as a model of how we should plan for retirement. The world has changed and what worked for mom and dad is the path to poverty for the boomers.

Government programs, and people’s thinking, all center on concepts that are no longer true. Typically a boomer’s parents (father really) retired at 65 with a paid-off mortgage, and both a company and government pension to live on. About ten years later, he was dead.

The typical boomer’s retirement? No pension, little to nothing from an over-burdened government plan, and a life-expectancy of 25 or 30 more years. So not only do you have less retirement income, you have to stretch it much longer.

Personally (I’m 46), I’m not planning on retiring at 65. Thirty work-free years is a luxury only the wealthiest should expect, unless you want to live those years in grinding poverty. I’m planning on working to at least 75, maybe longer. More time to save and fewer years of retirement is the only hope a boomer has of a decent retirement.

10

This is a very interesting discussion for me, since I was born the year after the Boomer generation ended, and have spent my life following just slightly behind them. My husband and I are looking at the future of our own retirements that should be happening shortly after the Boomers’, and we’re not anticipating a rosy future. One thing that we have decided for ourselves is to not put all of our eggs in one basket. One part of our retirement plan is to have a house to live in that’s paid off; another part is to have diverse investments (not just all RRSP’s {I believe you guys know them as 401k’s}). We’re not depending on the government and banks to honour RRSP’s - if they decide to change the rules on them somewhere down the line, I don’t want to lose all my retirement money.

The government pension plan (CPP) should be fit and healthy after they doubled the premiums we’re all paying a decade or so ago, but I don’t have a lot of faith in that, either. Having federal governments in charge of long-term plans is so ludicrous it’s laughable. Ha. Hahaha. <-- weak, ironic laughter.

(Eve, I have a friend who plans to not take care of himself too well so he doesn’t live too long. He calls it the “Early Check-out Plan.” He’s not completely joking, and I’m not completely sure he isn’t on to something.)

11

An RRSP itself isn’t an investment. You can have many diverse investments, all qualifying as an RRSP. If you have investments outside of an RRSP, (and you are not already at your limit), it’s not a good idea since you are losing out on substantial tax savings.

There is nothing for banks or governments to ‘honour’, once you have received the initial tax deduction for the RRSP eligible investment. Once you reach 65, the investment income is taxed, presumably at a lower rate than you’d pay now since your income is less. The only thing the government could do would be to start taxing the income earlier than age 65. That would be highly unlikely, but still you wouldn’t lose your investment, just the RRSP-related tax savings.

In other words, the worse case scenario is that the investment is treated just like a non-RRSP eligible one. The safety of your money is dependant on the investment itself, not it’s eligibility as an RRSP.

12

Not quite fair. There were legitimate negotiations and promises made. Many corporations are renegging on contracts and are not paying promised health care and fighting pensions. It was not poor planning but permitting companies to leave emloyees high and dry.
Just a few years ago .The big three were making incredible profits on huge cars and trucks.
They didnt take care of the shortages when they could have. Seems to me they had other plans made.
Northwest Airlines has gotten a judge to relieve them of pensions and the other airlines will follow. It is a free for all for corporations .with a sympathetic judiciary, the workers are screwed.

13

Hey, I’ve got a better plan for you, but don’t tell anybody. If everybody knew about this it wouldn’t work. You can commit a lucrative armed robbery, like a jewelry store or bank, and then head for a country with no extradition agreement. If you get away with, you’re set. If not, I figure three hots and a cot and free health care are a better retirement plan than most of the post-boomers are headed for.

Note to Mods: I’m just kidding, not advocating a criminal act.

14

And risk spending the rest of my life in an orange jumpsuit?! Thanks, I’ll take the pills and blade.

15

I don’t want to be pollyannaish, but I think almost anyone who is a true “Boomer” (b.1945- ~1964) can pretty much count on what she/he was promised from Social Security, unless radical life extending procedures are developed.* Barring a complete U.S. economic collapse (and we are talking a time span of 4 decades - so this isn’t impossible), Only the people at the tail end of the Boomer generation, at the very tail end of their lives, really are likely to face reduced benefits (circa 74% of what was promised ) and my WAG is before that happens we will see things like higher payroll [and maybe other] taxes, wildly free immigration, & means testing for the highest income percentages etc

I guess I’m saying (GDON!!) in August 2006 *I think it is **more likely ** that John (b.1949) and Jane Q. Public (b. 1956) will be getting in 2031 what they were promised in 2006 in Social Security income, than it is that the Government tells them “Sorry folks, you are SOL on SS.” *

*The true crisis, IMO, is Medicare. We already have folks in 2006 “working for Insurance” or working to “pay for my medicine”. That is only going to get worse. If the government promised you a 2006 32K income and delivers, but your medicine is 18K a year - you are still screwed. This is looming - really it is already here to some extent now - and I am not sure what will happen (A gray vote revolution? Socialized Medicine? Higher taxes to fix Medicare? - I dunno)

16

[
There will be Soc Sec. There will be a few cuts and stuff, but more or less it’ll be there. It wonlt get you much. Well- if your house is paid up, then that, the no mortgage payment and the reverse Mort will be enough. Get used to mac and cheese, but you’ll be OK.

Two peices of free advcie.

I]Max out your 401K plans, * Fergawdssakes, at least to the amount of matching and I’d ay no less than 10%, even if no matching.
Don’t constantly re-fi your home up to the total equity. Your equity is another great more or less tax-free retirement plan. Don’t piss it away by buying giant screen TV’s.

If you do those things, you really don’t need (other) “savings”. A Maxed out 401K converted to an annuity, Soc Sec, and either a traditional pension or a reverse mort and you’ll be fine.

17

Looks like when we retire in ten years or so there will be a large pool of good, if geezerly, people to hire. :smiley:

Both my father and father-in-law have extensive savings besides pension and social security. They’re both 90 now, and neither has had to worry about money.

Anyone with any sense will start moving from equities to high yield safe investments starting about a decade before retirement. Now, when the market is reasonably high, is an excellent time to start.) I just got info on new 401K options targeted to a certain number of years before retirement, in five year increments. These shift investment amounts automatically, and sound like a great idea to me.

When my youngest kid was about 3 I went to a college funding seminar, got in with an investment counselor, and have been saving fanatically ever since. I always had a 401 K. I’ve never had debt besides mortgage debt, and that is a small amount relative to equity. I also found that a good investment counselor can do a lot better than I can, especially in recommending things I never would have thought of.

Now my car is 9 years and 104K miles old, and we’ve put off new carpeting until my youngest is out of college, but I’m not worried about retirement.

One interesting thing I read - it is not a good idea to budget retirement money equally across all years of retirement. When you just retire, you’re young and do stuff. When you’re older, you retrench and don’t spend much on travel. It pays to have fun early, and assume a smaller budget later. Seeing how my father and in-laws spent money, this sounds reasonable.

18

What, you want to shave your legs before you go?

Tris

19

My wife and I got really lucky a few years ago when her bachelor uncles began dying and leaving all their accumulated wealth to her and her siblings. We saw the windfall as a wake-up call and began socking it all into various IRAs and investment portfolios. It wasn’t the lottery, and we’ll still have to work well into our seventies before we retire, but it helped to make up a little of the money we’d failed to save over the years.

Our sons probably benefitted more from this than we did – they realized that Mom and Dad were panic-investing and decided, each in his early twenties, to be more ant than grasshopper.

20

What is the effect of millions of boomers drawing down their equities from the markets en masse? The only possible outcome that I can envision is the market tanks for a long time. Of course markets don’t work that way - otherwise, perhaps shorting the entire index would be a “foolproof” way to profit. But still…