I have bad news for Baby Boomers: they are acting like their parents. According to a study by Boston College’s Center for Retirement Research, Baby Boomers are accumulating wealth at the same rate as previous generations. That may not sound like a problem, but her parents often had generous pensions to fall back on. Many Baby Boomers don’t have any pensions and those who do face the possibility that their company could collect them in the coming years.
Counting on Investments
They have another thing in common with their parents…they think their investments can work miracles. In a New York Life survey, people ages 41 to 92 were asked what the “safe” withdrawal rate was for retirement savings. Security is defined as the rate at which you could take money out and not run out in retirement.
Of those surveyed, 40% had no idea… not surprising until you realize that half the group was probably already retired and the other was about to retire. If they were already withdrawing money or about to, wouldn’t it have been nice if they had an idea of what a sustainable withdrawal rate would look like?
Almost 30% of those surveyed thought they could get 10% or more. You’ve probably heard that stocks return more than 10% a year. Of course, they forgot to take into account some minor facts like, 1) stocks don’t hit 10% every year and sometimes have several consecutive years of decline, 2) even if stocks yielded 10%, there would be no chance for growth and without growth inflation reduces purchasing power every day, and 3) I know very few people in their 70s, 80s and 90s who want to have 100% of their money in stocks, especially now.
Ask a financial advisor (at least one who knows what they’re doing) and they’ll tell you what only 10% of respondents did: the “safe” magic number is around 4-5%. Survey synopsis: 40% had no idea, 50% were going to spend on poverty, and 10% were in the ballpark.
Long life and prosperity
To compound all of these problems, Baby Boomers are likely to outlive their parents and potentially their money. According to the American Academy of Actuaries, today, a 65-year-old woman has about a 20% chance of living to age 95. (Sorry guys, your chances are only a little more than half.)
People think I’m a little crazy because I want to make sure their money lasts until age 100, but there’s a reason I’m crazy: If my husband and wife make it to age 65, there’s a 28% chance that one of them do. he will blow out the candles on her 95th birthday. If you don’t plan for your money to last until age 95 or older, you have a more than 1 in 4 risk that the money will run out before you or your spouse.
Load it up!
Oh, and before you think all I have is good news (yes, that was a sarcastic comment), Baby Boomers are knee-deep in debt. It’s not that the country itself is doing any better. According to a Direxion Funds article, 25 years ago the US economy was $3.1 trillion in size and our nation had a national debt of $1.0 trillion. Today, the economy is about four times that size and our national debt is ten times that size and growing.
Bottom line
Baby boomer parents had pensions, spent miserably, didn’t live long, and had little debt. So Baby Boomers (and the rest of you), grow up and stop acting like your parents. You can’t afford it.
