Think you’re not ready for retirement? You’re not alone.
The Golden Years—that’s what they've been euphemistically called in the past. They started when somebody handed you a gold watch for the decades of hard work you put in making the company a success. Next, came a number of speeches from people who said nice things about your work ethic, skill set and the fact that you never left an empty coffee pot on a hot burner. You began thinking about applying for Social Security, where you’d play golf and, perhaps, what foreign lands you might wish to visit.
Retirement was a reward for a lifetime of hard work. You might have had a pension coming, and it was fully funded. Uncle Sam was certainly going to do his part; there was no doubt the promise of Social Security was going to be fulfilled. Your largest concerns for the immediate future were whether your grandkids were coming out for the holidays and whether your passport was up to date.
If this sounds familiar, you’re likely part of what former news anchor Tom Brokaw referred to as “The Greatest Generation.” You survived the Depression, fought in World War II, raised a family and helped build the United States into the world’s most powerful economy.
To which the baby boomer generation says: “Where’s ours?”
The boomers are the generation born between 1946 and 1964. For those of you keeping score at home, they’re 78 million strong, according to the Social Security Administration, a federal agency that, up until now, mattered only to boomers in terms of keeping Social Security numbers out of the hands of identity thieves.
But now, boomers are beginning to contemplate retirement—a retirement that bears just a passing resemblance to the one their parents had. To begin with, the world has changed. Granted, it does for every generation, but for the boomers it’s literally been a revolution with technology at its center.
Space travel? So passé we don’t even bother. Computers are no longer the size of Buicks, and your cell phone allows for a variety of communications that changes so often the word “outdated” is part of our daily lexicon. The Internet lets us work from any place in the world, which, as it turns out, is both a blessing and a curse, as anyone who’s been on vacation in the last five years can tell you.
So the world spins at a frantic pace, in no small part because the boomers joined a revolution begun by our parents, harnessed technology…and then blew it up. While the greatest generation believed in hard work and modesty, eating your veggies and getting plenty of rest, the boomer generation had more of a mind to have its dessert first. Burning the candle at both ends became more than a trite phrase. And boomers invented the victory lap, to be sure everyone understood its achievements.
As we jogged about with our hands held high over our heads, the concept of delayed gratification slipped quietly away. The generation before dutifully saved for the down payment on that American Dream, its white picket fence surrounding a three-bedroom, two-bath abode that was neither Spartan nor outlandish. But we needed more house, and 25 percent seemed like a lot of saving.
"More" turned out to be a central theme for boomers. More cars, more often, more homes, more divorces. We had “more” covered pretty well.
And “more” helped build an economy of intense consumerism, where Madonna’s tune “Material Girl” more than resonated. The “more” soon included more credit, more balances and more juggling.
So now we come to retirement. And as we go into that good night, it turns out we’re true to our credo—that is, we need more.
We need more time to plan our retirement. We need more money. And, as it turns out, we’ll likely have more years in our retirement as well.
Running the numbers
There’s no shortage of data points to draw from when it comes to the retirement of the “Me” generation, and the numbers range from the mildly disturbing to the somewhat alarming to, “Good Lord, what the hell happened?”
The Employee Benefit Retirement Research Institute reports that in March of last year, 43 percent of American workers said they had less than $10,000 saved for retirement; 27 percent said they had less than $1,000. That number, incidentally, was 20 percent more than the year before. On the plus side, 69 percent said they’d added to their nest egg during 2009, but that number was down from 75 percent the year before. The take away from that particular report was that just 16 percent believed they’d have enough to retire on—the second lowest number in the 20-year history of the survey.
Want more? The Certified Financial Planners Board reported that in July of last year, 64 percent of Americans surveyed were very or somewhat prepared for retirement, and 35 percent said they were not very or not prepared at all. In the survey, 33 percent said they were “cautious” about their personal finances, 26 percent said they were “calm” and 25 percent said they were “concerned.” Respondents were allowed to choose more than one answer, but apparently weren’t allowed to use a description that began with a letter other than C.
On the other hand, the Associated Press/LifeGoesStrong.com
poll shows 11 percent of boomers surveyed are convinced that, when they retire, they’ll live in comfort. The same survey shows that a full 25 percent believe they’ll never retire.
I’m not making that number up: One in four boomers says his or her retirement will never come.
All of us have heard that Social Security is going broke and, one day in the future, the system will simply go toes up and those who paid into the system their whole life will be told not to grow any older and not to quit their day job. The reality is, Social Security has become the third rail of national political debate, with any mention of failure or delay of paying benefits greeted with a scorn normally reserved for companies in the cable industry.
The AP survey shows 64 percent of boomers consider Social Security intricate to their retirement. A full 42 percent are delaying their retirement thanks to the latest financial crisis. Perhaps the most eye-popping statistic is that 24 percent of boomers say they have nothing saved for retirement.
. The empty set. The inside of a bagel.
On the other hand, 10 percent say they have at least $500,000 squirreled away and, of that number, 50 percent say they’re worried about the 24 percent with no savings putting the arm on them for a loan.
Putnam Investments reports that 70 percent of its clients who retired between 1998 and 2002 wished they’d saved more. The AARP says 80 percent of those it surveyed plan on working part time after they retire.
Coming of age
The Society of Actuaries, using data from the Census Bureau, estimates the median lifespan for males in the United States is 85 and, for females, the number is 88. Thanks to advancements in science, boomers can count on living longer, which means more years in retirement than the generation that came before, right?
Well, maybe. The Bureau of Labor statistics show that between 1995 and 2000, men retired at the age of 62, woman at 61.5. In 1950, men retired at age 67.
You can’t swing a walker in a circle without hitting a boomer who’s only too happy to explain how we’ll rewrite the book on retirement. And while the numbers presented here tend to show that book may include chapters with titles like, “What, Me Worry?” and “No Plan, No Problem,” one recurring theme certainly seems to be that boomers will retire later. Another could be that traditional retirement may include cycles of leisure time and work. A report by Merrill Lynch shows that three out of four boomers have plans to retire by age 64 and then possibly start another career. More than 40 percent of those surveyed envisioned a retirement where cycles of leisure time would be broken up by chunks of working time.
Sounds a little like that Chuck Schwab commercial, doesn’t it? The annoyed cartoon face taking off his glasses (a subtle way of telling us his eyesight is failing, thus he’s retiring soon) with the guy saying, “It’s either a magic number I’m supposed to reach, or a beach house or a vineyard. Just help me plan my retirement in a no-nonsense, let’s-get-this-thing-done-kind-of-way. A vineyard
? Give me a break.”
Boomers have attracted acronyms the way Adam Sandler attracts bad movies. Think Yuppies (young upwardly mobile professionals), Dinks (double income, no kids), NIMBYs (not in my backyard) and now NQRs, as in “not quite retired.” This last one captures some of the boomers who planned, invested, diversified and put in their papers, only to find they still need a job to make ends meet.
John Whiting, a partner and lead adviser with Moss Adams Wealth Advisors in Santa Rosa, has seen more than a few NQRs. “You hear more about it today than before, where people thought they’d retire at a specific age. But when they get there, they decide to keep going. And there can be lots of reasons for the change.”
Whiting, an affable type, says there’s a trend toward retiring later, and that he advises clients to delay taking Social Security if their plan can support it, as there can be as much as an 8 percent increase per year in the amount they’ll be eligible to collect if they can afford to wait.
While there’s no shortage of data regarding what boomers are doing (or, in some cases, not doing), Whiting says a lot of information offered about retirement is designed to elicit a specific response. “So much of the information out there is driven by ads and what sells. In some ways, it’s fear mongering. It’s dangerous because some of it’s designed to make people feel as if they have to act. And when people feel they’re backed into a corner, oftentimes they’re not making the highest-quality decisions. They’re reacting.”
At this point, I ask Whiting what the biggest hurdles are in convincing clients to get serious about retirement planning. I suggest they may be reluctant because many feel they don’t have the financial expertise to invest wisely for the long term. Or perhaps facing their own mortality is too daunting. “I think it’s simpler than that,” he says. “A lot of people don’t want to know, because they’re afraid it may be bad news. They think they haven’t done enough or what they’ve done isn’t good. But, in many cases, they’re better off than they thought they’d be. Getting started earlier allows more time to get things in place for long-term benefit.”
So what does Whiting tell his clients? Well, to begin with, each client has different concerns and abilities to contribute to his or her retirement, and the plans Whiting offers are customized to include diversification and appropriate balances of risk and return. Before we get into it, he stops me. “What you just said, about risk and return, that’s a very good thing for people to begin with—understanding that those two things are linked directly together.”
Traditionally, investors have been advised to pull back on risk as they grow older, with the conventional thinking being that a younger investor can take more chances in the name of capturing a larger return. Should the investment sour, the younger investor still has time to recover, while an older investor over-leveraged with risk could take too big a hit to allow a satisfactory recovery. This particular conundrum can become dangerous for the boomer who comes to the retirement planning party late and tries to make up for lost time.
“Even if someone is beginning to invest at age 50, while that isn’t perfect, it isn’t terrible. One of the things to keep in mind is that the 10 or 12 percent investment return with no risk doesn’t exist,” Whiting says. “People need to understand how much risk there really is and then decide how much they’re comfortable with.”
Another general tip Whiting uses is for investors to track their investments quarterly but resist the urge to constantly tinker with them. “The most successful investors have a written investment policy statement that dictates a model for their investments,” he says. “They review it quarterly and make adjustments semiannually or annually. It may be an old line, but it’s true: Handling investments is like soap in the shower—the more you handle it, the less you have.”
What about general guidelines for the boomer who perhaps had an investment portfolio with too few blue chip stocks and too many investments (with, say, Harrah’s at the top of the page)?
Whiting recommends getting serious about your 401K as soon as possible. In addition to the obvious advantages of contributing pre-tax income to your account (and, hopefully, benefiting from your employer match), a 401K gives investors a chance to diversify in a simple way. “Too often, when things become challenging, there’s a tendency to pull back from that. The reality is, it has to be the first bucket that gets filled,” he says.
Another simple, mostly painless way to up your retirement prep is to save more. Small steps, taken early, make a huge difference in the long run, he says. “Recommit to saving. The whole 'skip your latté a day' thing has been overplayed, but there are plenty of good examples of everyday ways to save money that are simple and, at the end of the year, you have $2,000 or $3,000 more in your savings,” Whiting explains.
Finally, Whiting suggests that for some investors worried about how to diversify or about spending too much time making moves with their 401K, Target Date funds are a worthwhile thing to explore, as they can be well diversified and will systematically rebalance over time. “Essentially, they’re mutual funds of funds, and they give people instant diversification. Also, they’re constantly being rebalanced based on performance. For some 401Ks, they’re the default if people don’t make a choice of one of the options listed.” If an investor does these two things consistently, says Whiting, they’ll likely be ahead of 90 percent of investors.
For boomers, whether making a career choice or picking out a car, it’s always been about the options. So now, as we stare retirement down, we still have options. And the only option that’s clearly not one, is to choose not to worry about it at all.
Contributing Editor Bill Meagher also writes the Only in Marin column. He’s on the tail end of the boomer generation. His investment philosophy calls for buying low, selling high, being fearful when others are greedy, and being greedy when others are fearful. He also believes Jimmy and Warren Buffet are twin brothers from different mothers and that Jim Cramer should pay somebody to iron his shirts. You can reach him at email@example.com.