A ticking time bomb for boomers?

A ticking time bomb for boomers?From the September / October edition of The Quarter Roll
Are Boomers Facing A Slow Burning Crisis?
By Ted Feight, CFP

Through a combination of procrastination and bad timing baby boomers are facing a personal finance disaster just as they're hoping to retire. In January 2011, more than 10,000 baby boomers a day began turning 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.

Today, I see a lot of new empty-nesters who spent all their years and money raising kids, putting them through school and clothing them in the right brands. "Now their kids are gone, and they realize they've done nothing to prepare for retirement. Many prospects come in to see us today and think they have all this money and they ask how they're doing, and they're shocked when I tell them they are in trouble. When they were kids, they thought that if they had $100,000, they were rich. Today, that doesn't go very far."

There are several reasons to be concerned:
-The traditional pension plans are disappearing. In 1980, 39% of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15% and getting smaller, according to the Employee Benefit Research Institute.

-Reliance on stocks in retirement plans is greater than ever; 42% of those workers now have 401(k) accounts. But the past decade has been a lost one for stocks.

-Many retirees banked on their homes as their retirement fund. But the crash in housing prices has slashed a third of a typical home's value. Now 22% of homeowners, or nearly 11 million people, owe more on their mortgage than their home is worth. Many are boomers.

Failure to save
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% in the 1970s and '80s. By late 2007, the rate had sunk to -1%.

The recession has helped improve the savings rate - it's now back above 5%. Yet typical boomers are still woefully short on retirement savings. Boomers in their 50s and 60s with a 401(k) account for at least six years had an average balance of less than $150,000 at the end of 2009.

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 percent 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.

Read the rest of the story in the September / October 2011 edition here

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