As Published in the Spring 2012 Edition of NJ Lifestyle
- Much Longer Retirement: Due to the increase in longevity, today’s retirees that retire in their 60’s may be retired for 30 years, whereas their parents’ life expectancy at age 60 was fifteen years or less. Being retired potentially twice as long as their parents’ means Boomers need more money saved.
- Savings Instead of Pensions: Although the Boomers’ parents had a much lower per capita income, many had corporate pensions. Boomers were the first generation to demand higher salaries and the freedom to change employers and, for that flexibility, saw their pensions phased out for 401(k)s. Many Boomers don’t have enough saved in their retirement savings plans and do not have the corporate pension to fund their basic needs.
- Loftier Retirement Goals: Boomers’ parents lived more simply than their offspring. Many Boomers’ parents were Depression-era babies who were much more economically disciplined than their children have become. Many Boomers want their retirement to include travel, new cars, dining out often, etc. These goals are achievable, but only if retirees have amassed enough wealth while working to fund this type of lifestyle.
- Different Interest Rate Environment: When the Boomers’ parents started to retire in the 1980’s, interest rates were much higher than they are today. Over the next thirty years interest rates began a steady decline and provided a great total return for bond investors. Boomers looking to retire today face just the opposite scenario. Interest rates are at all-time lows and bonds will most likely not supply a great total return, at least not over the next decade. Boomers’ parents that were investors tended to decrease their equity exposure in retirement and increase their fixed income exposure as a way of reducing the overall risk of their portfolio. For the reasons described above, this may not be the right strategy for Boomer retirees.
Rather than take an equity versus fixed income approach to retirement, we assist our clients in establishing a sustainable withdrawal rate in the 4-5% range and building a diversified portfolio built around a total return concept rather than a bond versus stock focus. The key to any retirement plan is to develop it early (preferably in your 30’s and 40’s, as opposed to your 60’s), review it annually, make changes as necessary and treat your retirement funding as important as any other recurring bills like your mortgage. If someone comes to us in their 60’s and has inadequate savings for their desired retirement, the only thing we can do is tell them to work longer and save more. However, the earlier you start to save, the less painful it will be and the better off you will be in the long run. As with most things in life, planning and discipline are crucial to a successful retirement plan.