Boomer Retirement Market

[mickeyd]

This article is geared to financial planners and the like, but since they mention "mass affluent, with $500,000 to $2 million in investable assets" I thought that this gang would receive some benefit, or as L. "Yogi" Berra once noted~ "the future isn't what it used to be."

The Boomer Doomer
For retirement savings data, we turn to Employee Benefits Research Institute (EBRI) reports. For 2010, EBRI data shows that people over 60 employed for 30 or more years had about $200,000 in their 401(k) accounts, while people in their 50s are poised to retire with similar account balances. Even if we didn’t take living costs into account, it is obvious that these amounts are inadequate, even for two-income families. Moreover, the time required to undo such gross errors is running out.

The first thing to note is that the pending boomer crisis is real and immediate. There should be no illusions about this issue in the advisory community. The problem could be as big, if not bigger, than the 2008 financial crisis, which led to enormous bailouts. It’s big enough that it could require the involvement of Congress and new legislation if boomers are to have enough money in retirement, including Social Security and Medicare. Unless such basic benefits are secured, the retirement problems of boomers will worsen. There are 90 million boomers retiring betweeen 2010 and 2030, and they collectively own most of the nation’s assets. If they organized to fix this problem, they could become a huge political force of change. But in lieu of a grassroots movement, it is up to the advisory community to serve the children and grandchildren of those who fought World War II.

The Anatomy Of The Boomer Retirement Market

 

[Brett_Cameron]

Interesting article.

I am always leery of people who dish out a lot of statistics in terms of percentages with fully explaining "percentage of what". That sort of discussion always clouds my understanding undermines the credibility (in my mind) of the points they are trying to make.

Interesting view in "It is the advisor’s fiduciary responsibility to ensure that the future cash flows are not spent on discretionary expenses. "

Summary: Interesting article but I did not get the facts behind the statistics.

 

[clifp]

It seems to me the obvious solution of what to do with 90 million boomers retiring is to export them.

Let's include a 65+ year old retiree with every Apple product sold overseas. Problem solved.

 

[Animorph]

Typical scare article I think. Maybe true if all you have is a 401k and no SS or pension. They don't mention SS or pensions anywhere that I saw. They don't consider taxable account savings. If boomers really "collectively own most of the nation's assets", they must be hiding them someplace besides 401k accounts I guess.

And to use 30 year Treasurys as a retirement portfolio is just icing on the cake. If these are the guys responsible for advising boomers about retirement, I wish them as much luck as possible.

 

[Koolau]

Perhaps because it reinforces my thinking, my take-away is that by my age (65) it is too late to "grow" your way out of a shortfall by investing heavily in the stock market. Clearly this was not the main focus of the article, but I think it's an important point. Too many people get to retirement age and find they don't have enough money. If an advisor simply says "...this vehicle typically yields 3% and this one over here typically yields 7%..." the uninformed may jump at the higher yield without thinking about the downside (50% drops ARE possible).

I realize lots of folks near my age (on this forum) have sizable commitments to the stock market. But most of you have "plenty" of savings and are attempting to maximize your retirement income, not make up for too little savings. I've tended to go the other way and emphasized stability rather than increased income. But either way, our calculations show us this will "work" for us. Can't imagine being 65 with $200K investible to retire on (even with average SS). YMMV

 

[bld999]

First off, I haven't read the article, but 90 million? I've usually seen quotes of 73-76million cohort size. Suspicious.

 

[rescueme]

First off, I haven't read the article, but 90 million? I've usually seen quotes of 73-76million cohort size. Suspicious.

That number includes their childern/grandkids that still live with them ...

 

[kumquat]

WADR, I got this far:

that advisors can truly appreciate the colossal nature of the task at hand.

GMAB, this is a problem for 'advisors'? Maybe, just maybe, if 'advisors' had a duty to act in their clients' best interest. As it happens, it's a gold mine.

 

[2017ish]

I have read the linked article three times and am still unsuccessfully striving to understand the stats cited in it. E.g., "In terms of personal savings, including retirement savings, the middle-class group saves about 17.5% while the high-net-worth group saves 21% [of their income, from context]. Finally, the wealthy pay an average tax rate of about 5.4% while their counterparts pay about 4%." {this is second para from end}

4 or 5.4% taxes and those taxes constituting only 1/4 of savings rate for boomers heading into retirement?? Where do I sign up? Also, references 11 or 12% for food, half of which is "consumed at home." {4th para from end} Wow. The average person spends as much eating out as at home--and even the "wealthy cohort" spends twice as much on food as on taxes?

Perhaps the article (or the EBRI stats relied upon) are using different definitions than are generally employed? Or am I missing something obvious?

 

[GalaxyBoy]

I'm always reading articles about the lack of retirement savings and the statistic often quoted is the "average 401(k) balance" or something like that. I've had a half-dozen employers each with their own 401(k) plan, but I always rolled the balance over to an IRA upon termination. Today my 401(k) is roughly 5% of my investable assets so that's not a very good metric of readiness for retirement, at least in my case.

 

[Nords]

Moreover, the time required to undo such gross errors is running out.

The financial planner who wrote this article appears to be unfamiliar with the concept of "work until you die".

I'm a little confused by the premise of the article. Did some great tragedy occur to remove all their "$500K-$2M" investable assets and leave them with only $200K? Is the implication that we need a bigger safety net than Social Security and Medicare/Medicaid?

I've also read that, for the first time ever, Millennials now outnumber Boomers by a slim margin. So as soon as a few of those Millennials get a job, they can start contributing to SS again to help improve the slope of the Ponzi pyramid.

 

[Forrest]

I have a difficult time believing anything stated in the article - the quoted tax rate is much too low and the tax (federal, state, etc) is never defined. From the article "The average income in 2010 for all Americans (using a 50-year-old boomer as a reference point) was about $62,500 gross and about $60,700 net of taxes." My gross is a little higher, but my total tax (federal, state, real estate) is 15 times higher than the article!

 

[Redbugdave]

Typical scare article I think. Maybe true if all you have is a 401k and no SS or pension. They don't mention SS or pensions anywhere that I saw. They don't consider taxable account savings. If boomers really "collectively own most of the nation's assets", they must be hiding them someplace besides 401k accounts I guess.

And to use 30 year Treasurys as a retirement portfolio is just icing on the cake. If these are the guys responsible for advising boomers about retirement, I wish them as much luck as possible.

That's what I was thinking, also. Many of those people must have regular pensions, and don't have a 401 or need to bankroll a sum to retire on. It must be nice to make a lot of money and piss it all away...

 

[grasshopper]

There are 90 million boomers retiring betweeen 2010 and 2030, and they collectively own most of the nation’s assets. If they organized to fix this problem, they could become a huge political force of change.


Boomer Power, we are a force to be reckoned with. To bad AARP is our spokes model.

 

[M Paquette]

There are 90 million boomers retiring betweeen 2010 and 2030, and they collectively own most of the nation’s assets. If they organized to fix this problem, they could become a huge political force of change.

Boomer Power, we are a force to be reckoned with. To bad AARP is our spokes model.

Well, a smallish slice of that boomer population owns most of the nations assets. About 6%, makinf some generous assumptions... As long as the other 94% of the boomers are OK with what that 6% wants, I suppose...

http://www2.ucsc.edu/whorulesamerica/power/wealth.html
http://www.levyinstitute.org/pubs/wp_502.pdf (PDF)

 

[Ed_The_Gypsy]

90 million marks to fleece!

 

[nun]

Typical scare article I think. Maybe true if all you have is a 401k and no SS or pension. They don't mention SS or pensions anywhere that I saw. They don't consider taxable account savings. If boomers really "collectively own most of the nation's assets", they must be hiding them someplace besides 401k accounts I guess.

Most Americans don't have pensions or substantial taxable investments. So they will be relying on 401k, IRA etc, SS and any equity they have I their home to finance retirement. This board's saving and financial habits are way out of the American norm.

 

[Chuckanut]

This board's saving and financial habits are way out of the American norm.

+1

 

[Redbugdave]

Most Americans don't have pensions or substantial taxable investments. So they will be relying on 401k, IRA etc, SS and any equity they have I their home to finance retirement. This board's saving and financial habits are way out of the American norm.

What planet are these other people on? How can you live day to day with no thought of the future?

Thinking some more about it, I believe it has to do our culture.

In good old America, there is a 3, (maybe 4), generation money cycle.
1st generation makes money.
2nd generation maintains the capital.
3rd generation spends the money.

This also helps explain the cycles of growth and depressions.

1st generation, (my grandparents), has the memory of poverty, (Great Depression, Immigration, a couple of World Wars), and works hard.

2nd generation, (my parents), has the spoken memory of poverty by living with their parents. This generation has progressed financially in the work place and they provide a better life for their children that they themselves had.

3rd generation, (Boomers, my generation...but not me personally), does not have a memory of poverty and thinks they will always have money, so they spend. (But in later years, with this economy some are feeling like what it is to lose everything, (poverty).

4th generation, (my kids), ??

Opinions?

 

[rothlev]

Middle class america has to work very hard and be very educated and financially savy to save money. Raising children and surviving takes most of the income. Schools unfortunately did not ( in my day, anyway) do a good job of educating students in this area. High school students cannot apply what education they receive either. ( they are too young) I do taxes ( for Block) and a large majority of the "boomers" I see have no clue what their retirement might look like.

 

[donheff]

What planet are these other people on? How can you live day to day with no thought of the future?

Thinking some more about it, I believe it has to do our culture.

In good old America, there is a 3, (maybe 4), generation money cycle.
1st generation makes money.
2nd generation maintains the capital.
3rd generation spends the money.

This also helps explain the cycles of growth and depressions.

1st generation, (my grandparents), has the memory of poverty, (Great Depression, Immigration, a couple of World Wars), and works hard.

2nd generation, (my parents), has the spoken memory of poverty by living with their parents. This generation has progressed financially in the work place and they provide a better life for their children that they themselves had.

3rd generation, (Boomers, my generation...but not me personally), does not have a memory of poverty and thinks they will always have money, so they spend. (But in later years, with this economy some are feeling like what it is to lose everything, (poverty).

4th generation, (my kids), ??

Opinions?

Possibly, but I think it depends on how the parents communicate. I fall into the second generation category since my parents were born in 1905 and 1910. They were ok financially but solidly LBYM. My kids have heard the same mantra from DW and me and seem to have adopted the attitude. I suspect kids who go off the rails may have parents who foster a sense of entitlement.

 

[rodi]

I think the boomers haven't saved for several reasons.

Median real wages have been shrinking. (They've been increasing for the rich - but for the other 90% not so much.) This has been offset by dual incomes. And when you have dual incomes, you spend more money on others stuff (more meals out, childcare, lawn services and home cleaning services... )

Plus lifestyles have been expanding. Just look at home sizes. I live in So. California. Homes built in the 50's and 60's in San Diego were 1200-2000 sf. Now the norm seems to be 3000-4000sf. Not only does it cost more to buy these homes, it costs more to run them (heating/cooling/maintenance.) So a bigger percentage of income is going to carrying costs on these homes. (Bigger mortgages, bigger utility bills.)

As far as educating kids on budgeting and the cost of things... I took a page from my MIL and my Dad... I give my kids (ages 9 and 11) the opportunity to earn $$. Then I make them use their own money to buy their personal electronics. It tends to eliminate a lot of the entitlement feeling. But it also makes me an unpopular person in my household at times. (Don't know how many times I've heard "but everyone in my class has an iPod but me!!!! - You're so mean!!!")

U.S. Standard of Living Has Fallen More Than 50%: Opinion - TheStreet
What’s Going Down with Real Wages? | Jared Bernstein | On the Economy

 

[haha]

Schools unfortunately did not ( in my day, anyway) do a good job of educating students in this area.

It's not just in this area, the average high school student graduates learning how to have sex and drink and very little else. But we have nice modern buildings and great athletic facilities!

Ha

 

[rothlev]

Rodi you are correct in the education of your children. They might not like it now, but later they will have learned how to manage their own money.

Most families do not teach their childen about finance, budgeting, spending, and savings, and taxes. What little teenagers learn in school isn't enough, and they can't apply it yet.

People think nothing of emptying out their 401k accounts when they switch jobs.

 

[rothlev]

It's not just in this area, the average high school student graduates learning how to have sex and drink and very little else. But we have nice modern buildings and great athletic facilities!

I taught in a high school for the majority of my career. Part of the problem is teenagers aren't mature enough to apply what they are taught. And of course the curriculum is severely lacking in life skills with all the algebra, geometry, advanced sciences and history classes.