Retirement Planning Red Flags

If we are to believe recent press, baby boomers are in for a rude awakening as we enter retirement. Across the board we read about how our generation has been overly focused on the here and now, gleefully choosing to spend money today rather than save for tomorrow. Boomers are depicted as the “me generation” and our perceived shortsightedness is often blamed for where we are today. And where exactly are we today?

  • $6.6 Trillion difference between where we are today and where we should be for retirement account balances
  • House values are down on average one third and with 1/3-1/2 of boomers net worth accounted for in their homes, this is a big hit
  • Pensions that existed on average for 39% of boomers back in 1980 are now found in only 15% of cases

Many of these situations are the result of financial fallout and the reorganization of our labor force so baby boomers are not completely responsible. But we do shoulder some of the blame. According to Jean Setzfand of AARP, the failure to save has had the biggest impact on boomers who ignored or underestimated their worsening financial situation.  The personal savings rate that back in the 1970’s was 10% came in at negative one percent in 2007. If we have not been saving to prepare to retire, what are we going to do after retirement to get by? Or is retirement even a possibility?

What are the retirement planning red flags that all retiring baby boomers will have to address?

(1)  Living longer so spending more – Americans are living 7.5 years longer compared to 1970 and boomers are an active crowd. The longer we live the more time we have to be active and travel and enjoy life but the more we will spend.

(2)  Medical Expenses – skyrocketing costs for medical coverage and treatment are showing no signs of slowing. Blue Cross recently petitioned for the right to increase premiums 59%. With no end in sight, this red flag is waving feverishly. Once we reach the age of 65, Medicare pitches in but not at zero cost. The average couple age 65 will spend $250,000 in out-of-pocket medical premiums and co-payments. And with no overall limit to out-of-pocket expenses, extended illnesses are always a risk to retirement security.

(3)  Employment challenges – we all hope that the economy will eventually get back on track and unemployment numbers drop. With financial issues, retired boomers will need to work in many cases to make ends meet. But the reality is that the nature of jobs is changing. Our technological advances are doing what they were meant to do, namely automating much that used to require human intervention. Due to this, many jobs that have been recently lost will not likely be refilled. And the added disadvantage of being older comes into play as companies prefer to hire younger employees who cost less to provide benefits to and whose early career path is at a more affordable point.

(4)  Social Security – will social security be there for us? The 75 million baby boomers will put serious stress on the system as soon taxes will not produce enough to cover future benefits. The social security trust fund is projected to be depleted by 2037 – then what? And if we do in fact receive benefits, can boomers wait or will they be forced by financial challenges to start at the earliest possible age of 62 which reduces the monthly amount of benefits received?

(5)  Living situation – currently 2/3 of those between ages of 55-64 still have mortgages to pay with a median balance of $80,000. We all hope to have no mortgage going into retirement but reality is what it is. Will seniors be able to stay in their homes and pay the bills? Or will they be forced to move in with other family members if that is possible? And as boomers age, their needs become greater and sometimes living with family is not an option. Retirement communities offer an option but are not cheap. And nursing homes currently run $70,000 per year for a shared room and $85,000 per year for private rooms.

The retirement planning red flags are plenty and solutions will be difficult to find and implement. Awareness of the problems is the first step but then in most cases it is up to individual retirees to navigate the retirement jungle.

Look for help early to understand exactly where you are and what your retirement will look like. You can still have an impact but with the passing days, the magnitude decreases so get on it now.

Retirement should be our time to do what we want to do when we want to do it. But for baby boomers caught up in the harsh realities of an unsure financial state of affairs, insufficient savings, and rising costs of living, the reality may not be exactly what we were dreaming of.

3 thoughts on “Retirement Planning Red Flags

  1. I think retirement is something that needs active management; kinda like a stock portfolio. If something isn’t working for you, accept the fact and start making changes as able. The saddest thing us Boomers faced in the past 10 years is 2 massive stock market declines that wiped out our wealth twice. Solution, get actively involved in your finances, learn a little stock market technical analysis, invest more conservatively. Take an active roll in retirement; don’t let someone else do it cause it’s it’s too hard.

    • Very good point – we have to roll with the punches and continually adapt to changes around us. And we need a little bit of luck as well!

  2. With an estimated 10,000 boomers retiring every single day for the foreseeable future our society is in for quite a rocky time. The figures you quote jibe with what I have seen and don’t make me feel comfortable.

    Delaying gratification was not the message we were raised on. Now, it is likely to happen regardless.

    The only good news: more retired readers each day for you!

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