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Baby Boomers Place Their Bets

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You may be surprised at how ill prepared baby boomers are for retirement. In his  Wall Street Journal article “Retiring Boomers Find 401(k) Plans Fall Short,” E.S. Browning writes:        

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

The median 401(k) balance for this group is $149,400. The study uses a withdrawal rate of 6% to generate annual income of $9,073—a far cry from the $74,545 that would be needed in retirement income to replace 75% of this group’s median household income of $87,700. Even with Social Security of $35,000, for example, there is still an unfunded gap of $30,472. Some are fortunate enough to have a pension, and half of those who do expect a median $26,500 in pension income a year.

One former executive of AOL who does not have a pension and whose stock options collapsed with the company stock is reducing her spending. She no longer buys $60 bottles of wine, and she has cut back on entertainment and organic food. But what’s concerning to me is the advice she’s receiving from her financial advisor, as described in the article:

Eventually, she wants to retire completely. Then, to make ends meet, she plans to take bigger investment risks. Her financial adviser then will shift some of her savings out of an annuity and into high-yielding bonds and real-estate investment trusts, aiming to double the return on that money to 10% a year.

You would think that someone who has been burned by the market would have learned a lesson. Being ill prepared for retirement shouldn’t motivate boomers to depend on the market to close the gap. Yet that’s exactly what’s happening here and in many more portfolios.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.