Baby boomers near 65 with retirements in jeopardy

[peejay 327]

Baby boomers near 65 with retirements in jeopardy

By DAVE CARPENTER

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 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 acknowledgment of reality, 40 percent said they plan to work "until I drop."

http://news.yahoo.com/s/ap/20101227/ap_on_bi_ge/us_retirement_crisis

[alienlovechild 75]

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.

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.

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.

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.

But in an acknowledgment of reality, 40 percent said they plan to work "until I drop."

I thought people weren't supposed to put most of their retirement funds on the stock market after age 50 or 55. If you gamble and lose whose fault is it? Whose fault is it when you get stuck with a 30 year old mortgage that you'e trying to pay off in your old age?

Case in point being Vanatta made a $100K/year but has only $5K in savings.

I'm more sympathic to the people that never made much money to save but life's rougher when you don't have much money. I'm pretty sure that I'll have to work til I'm 70 unless my health declines rapidly.

Edited December 28, 2010 by alienlovechild

[DEDixon 39]

• 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.

dow was at 14000 so wait it out, it will be 14000 again. since it has already been there, getting to 14000 shouldn't take that long once the economy turns. plus, no one uses the entire value of their portfolio the day they retire so maybe retire with a part-time job at first.

• 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.

same here, no one uses the entire value of their home the day they retire. again, just a waiting game.

[Brother Hesekiel 2,236]

The only way to survive in the US is to always live below one's financial means. That means 10 to 15% of every paycheck goes into the retirement fund. About 10 to 5 years before retiring, the money has to be pulled out of the stock market slowly, as the up-and down swings can take a decade. How much money one has is determined when the time comes to sell, not earlier.

If it seems extremely difficult to save 10% when you have a paycheck, imagine how difficult it's going to be when you don't have one anymore.

Just for kicks, in Sweden, with admittedly high taxes, retirement is secured by the government, as it is in most European countries. In fact, the French just went into the streets protesting, because the French Government dared to raise the retirement age from 60 to 62. Only here in the US, people are screaming about freedom and high taxes and have no clue what's really going on.

Would you rather pay $6 per gallon of gas now and have free healthcare for life, free education even up to the post-graduate level, 30 days free vacation pay, 14 salaries a year, paid leave after child birth with a guarantee that your job is waiting for you when you come back and a safe, government-guaranteed retirement, or

would you prefer $3 per gallon of gas and the erected middle finger up yours for life?

Just in case you wonder: the only reason I went through hell to keep my German citizenship when becoming a US citizen is to avoid having to live out of a shopping cart and sleep in a cardboard box if all hell breaks loose. You can put a price on most things, but being able to say: I'm broke, please help me, give me a warm place to sleep and some food and health care, especially when you're too old to work, is -- in my opinion, priceless!

[Usui Takumi 1,562]

The general rule I've always heard is subtract your age from 100 and that should be your "risky" balance.

[DEDixon 39]

I thought people weren't supposed to put most of their retirement funds on the stock market after age 50 or 55. If you gamble and lose whose fault is it? Whose fault is it when you get stuck with a 30 year old mortgage that you'e trying to pay off in your old age?

Case in point being Vanatta made a $100K/year but has only $5K in savings.

I'm more sympathic to the people that never made much money to save but life's rougher when you don't have much money. I'm pretty sure that I'll have to work til I'm 70 unless my health declines rapidly.

i disagree with leaving the stock market before turning 57 or so. if planning to retire at 62, most* recessions don't last more than 2 years so even at 57 and a recession hits, there is plenty of time for stocks to bounce back.

*i don't think it is fair to think of anything in terms of the current economic downturn for it isn't the norm. but, if anyone wants to think in terms of today's economic downturn, maybe think 1980 and 1992 when things were pretty bad as well, but they got pretty good in relative short order.

***********

i like that Vanatta blamed himself... he must be a republican.

[mawilson 2,133]

• Reliance on stocks in retirement plans is greater than ever; 42 percent of those workers now have 401(k)s.

This statement is premised on the false assumption that all 401(k) accounts

are or must always be exclusively invested in equities.

In reality, federal law requires 401(k) plan administrators to offer a wide

variety of investment vehicles, including at least one money market or other

cash equivalent. With very few exceptions, employees have essentially

unlimited freedom to choose lower-risk vehicles, including cash or cash

equivalents.

[DEDixon 39]

The only way to survive in the US is to always live below one's financial means. That means 10 to 15% of every paycheck goes into the retirement fund. About 10 to 5 years before retiring, the money has to be pulled out of the stock market slowly, as the up-and down swings can take a decade. How much money one has is determined when the time comes to sell, not earlier.

that is not the norm.

by the way, i'd rather risk retiring a little later than to take my money out too soon and lose some nice gains. you know, the more you have (should be a lot in later years), the more your gains stack up so getting out too early isn't smart either.

[mawilson 2,133]

Would you rather pay $6 per gallon of gas now and have free healthcare for life, free education even up to the post-graduate level, 30 days free vacation pay, 14 salaries a year, paid leave after child birth with a guarantee that your job is waiting for you when you come back and a safe, government-guaranteed retirement, or would you prefer $3 per gallon of gas and the erected middle finger up yours for life?

I would prefer $3 gas and a retirement account that is *my own* and not an unfunded liability

promised to me by a bankrupt welfare state. The cradle-to-grave benefits that Europeans enjoy

are a demographic and financial time bomb which is already ticking.

Just take a look at Spain, Greece, Portugal, Ireland and even the UK and France. General

strikes, riots, falling country ratings. Things will only get worse, as keeping up these

social benefits will drive Western Europe further into the red. Is that what you want for

our country?

[peejay 327]

The only way to survive in the US is to always live below one's financial means. That means 10 to 15% of every paycheck goes into the retirement fund. About 10 to 5 years before retiring, the money has to be pulled out of the stock market slowly, as the up-and down swings can take a decade. How much money one has is determined when the time comes to sell, not earlier.

If it seems extremely difficult to save 10% when you have a paycheck, imagine how difficult it's going to be when you don't have one anymore.

Just for kicks, in Sweden, with admittedly high taxes, retirement is secured by the government, as it is in most European countries. In fact, the French just went into the streets protesting, because the French Government dared to raise the retirement age from 60 to 62. Only here in the US, people are screaming about freedom and high taxes and have no clue what's really going on.

Would you rather pay $6 per gallon of gas now and have free healthcare for life, free education even up to the post-graduate level, 30 days free vacation pay, 14 salaries a year, paid leave after child birth with a guarantee that your job is waiting for you when you come back and a safe, government-guaranteed retirement, or

would you prefer $3 per gallon of gas and the erected middle finger up yours for life?

Just in case you wonder: the only reason I went through hell to keep my German citizenship when becoming a US citizen is to avoid having to live out of a shopping cart and sleep in a cardboard box if all hell breaks loose. You can put a price on most things, but being able to say: I'm broke, please help me, give me a warm place to sleep and some food and health care, especially when you're too old to work, is -- in my opinion, priceless!

Not that I'm trying to rattle your cage, but if Germany / Europe is such a Garden of Eden, why live in the USA among the savages? I mean...guys like me were born here and, as such, are pretty much stuck here at my stage in life and social class since this is my only citizenship. So...what's your excuse? Are you a glutton for punishment or do you get a remittance from the folks back home from the family fortune?