Boomer Retirement Bust
I’ve been reading a lot of stories lately about members of the Baby Boom generation who have discovered that they don’t have enough resources to fully retire and have had to extend their careers, take on part-time work in retirement to supplement their incomes, or forgo retirement altogether. The realization that they don’t yet have the means to retire at a time when they expected to retire has come as a complete surprise to some of them. I can understand why. This generation experienced such unprecedented prosperity and opportunity that a comfortable retirement had been taken for granted.
The people profiled in these pieces are affluent professionals, for the most part, who earned enough money over the years to provide for a comfortable retirement, but failed to do so. Here are ten reasons these Boomers, and millions like them, have fallen short of their retirement needs:
- Divorce. The failure of a marriage and the subsequent conversion of one household into two households can have devastating financial consequences for both parties, but especially for the wife who has fewer financial resources for retirement going forward as her earnings and time in the work place are generally less than the husband’s
- No Retirement Plan. Money was contributed to retirement accounts on the assumption that there would be enough to fund retirement when the time arrived, but no thought was given as to how much would be needed at retirement.
- Retirement Plan Not Monitored. A retirement plan was in place and funded, but it was not monitored to see if it was producing the necessary results. Again, there was the assumption that having a plan in place and funding it would provide enough money for retirement. Prospective retirees discovered too late that the plan had not met its goals.
- Mortgage and other debt. Boomers that had mortgage and other debt at retirement age discovered that while there may have been enough money saved to support living expenses in retirement, there was not enough to service the debtthat remained.
- Borrowing against 401K. Retirement accounts were tapped to cover unemployment, medical expenses, mortgage down payments, and so forth.
- Job loss or reduction in earnings. A period of unemployment or a reduction in earnings cut into the ability to save for retirement, especially if it happened in the years approaching retirement age which tend to be the years of highest earnings.
- Market losses. Losses in the stock market and the collapse of the housing market depleted Boomer retirement accounts and home equity in the years approaching retirement age.
- A late start in saving for retirement. Saving for retirement didn’t begin in earnest until after age forty. This put Boomers at increased risk of six and seven above. Those that made a late start in saving for retirement had to depend on their high earnings and on big returns in the stock market to reach their goals.
- Saved too little. The average percentage of salary contributed to 401K plans, including the employer match, was only 9%. Managers of 401K funds now recommend a 12% to 15% contribution which includes the employer match.
- Paid for children’s college education. Giving their children a college education cost Boomers both money and time and is often cited as the reason for a late start in aggressive retirement saving.
You can avoid these pitfalls, or at least mitigate the negative effects should you experience one, by living a cash-based lifestyle. That’s what Rosa and I have done for the last thirty years. Early on, we set a long-term goal that was defined in dollars and made a plan to achieve it. The plan included living beneath our means in order to get out of debt and stay out of debt so we’d have the money to aggressively save. We lived on one income even when there were two; we kept our standard of living the same and saved salary increases, bonuses, and windfalls. We put our savings into guaranteed accounts and avoided the stock market. Our goal and plan figured into every decision we made. We tracked our progress and made adjustments when necessary.
It worked. Unlike millions of fellow Baby Boomers, we retired on schedule in 2009, at age fifty-six, during the worst economic recession in seventy years. However, retirement wasn’t our only reward. The cash-based lifestyle gave us a lot of freedom along the way. Which is another way of saying that it gave us choices. That has been the best gift of all; the one we cherish most, and the one we continue to enjoy today.
K.C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages.
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