Financial Planning Will be Crucial as Baby Boomers Face a Host of Financial Challenges
I just read a great (but depressing) article in the Wall Street Journal decrying the pitiful state my generation finds itself in as we approach (or enter) retirement. I summarized the authors findings into this list of ten significant hurdles that the baby boomer generation faces as we prepare for old age.
Most Americans aren’t Saving Enough. According to a Wall Street Journal report, 46% of Americans aged 50-59 are not participating in a workplace retirement plan (pension or 401k). The median retirement account balance among these same workers will support only a paltry income of $8000 per year.
Social Security Benefits Are Stagnant. Medicare Part B premiums, which are usually deducted from Social Security benefits, are increasing faster than the benefits themselves. That means seniors rarely see a Cost of Living increase in their Social Security. If this continues, seniors retiring today will increasingly feel the pinch of inflation eroding their incomes as they age
Health Care Costs are Soaring. Last year the cost of Medicare Supplement insurance plans rose an average of 16%, mirroring overall increases in cost of health care.
Few seniors have a long term care plan. Medicaid is already struggling with the burden of caring for the elderly. It is difficult to see how the system can survive the coming tsunami of elderly as the Baby Boom generation hits its 80s and 90s. And only a small fraction of seniors have purchased long term care insurance.
A Surplus of Debt. Many baby boomers are borrowing heavily to pay for their kid’s education, and taking that debt into retirement as either student loans or mortgage debt. Nearly 70% of individuals over age 55 have household debt, compared to just over 50% in 1998. (WSJ)
There won’t be enough workers to pay the bills. As this generation retires en masse, there will be a shortage of working age people to pay the taxes which support government entitlement programs, pension funds, etc.
Divorce and Family Strains. According to Pew Research Center, the divorce rate for couples over 50 has doubled since the 1990s – even as the divorce rate for younger couples has declined. Divorce late in life can particularly difficult financially. If it is hard for couple to survive with 2 social security checks and combined 401k savings, it is many times harder for that same couple to maintain 2 separate households in retirement using the same resources. Especially once those resources have been plundered by the divorce attorneys.
The Sandwich Effect. Many boomers are still caring for and providing financial support to their aging parents, even as they try to retire themselves. And many of these are also providing support to adult children, who are facing a set of challenges unique to their generation, including student debt, stagnant salaries, and high housing costs.
Broken (or non-existent) Pension Funds. Only 9% of workers in their 50s are covered by a pension plan. And while many state workers receive healthy pensions in retirement, the pension funds that pay those benefits are often broken. Overtaxed states have few good options available to dig themselves out of the mess. The future of many public pension funds is uncertain at best.
An Unfavorable Market Cycle. We are almost 10 years into a bull market in stocks, and stocks have gotten quite pricey. Historically a period of such high growth is often followed by a decade of slower growth – so today’s retirees may not see a big tailwind provided by stock fueled investment returns.
My intention in assembling this list is not to depress anyone. It is just to reinforce the fact that a successful retirement is no longer something that just happens to you. There are simply too many obstacles to overcome. If you hope to live for 20 or even 30 years without a paycheck you need a sound financial plan.
With a good plan in place, even those who are behind in their retirement preparations can catch up. The key is being willing to accept lifestyle changes where necessary, prioritize future goals over current desires, and exercise and eat well! While this isn’t a health care blog, the longer you stay healthy, the longer you can work. And for those playing retirement catch up, every extra year of work will be rewarded with higher income when you finally do retire.
Don’t have a financial plan yet? Well, there is no better time than the present to start. Call us today to start planning your financial future.