Baby boomers and retirement
December 11, 2013
By Dr. Harold Wong
In May 2012, Transamerica Center for Retirement Studies released the result of its 13th Annual Survey of workers. This article focused on baby boomers, who were born in the years 1946-64. This places virtually all of them in their 50s and 60s. The principal results were:
Inadequacy of Worker’s Nest Eggs: Of those in their 50s, only 9 percent strongly agreed that they were building a large enough nest egg. Of those in their 60s, it was only 13 percent. Boomers simply are not saving enough. Those in their 50s are contributing to their 401k plan a median 8 percent of salary; for those in their 60s, they are contributing 10 percent of salary. In contrast, Asian immigrants typically save 20-40 percent of their incomes and try to “max out” the IRS-allowed contribution limits to any tax-deferred retirement vehicle such as a 401k, 403b, or IRA.
A Written Plan for Retirement: Of those in their 50s and 60s: 14 percent have a written retirement plan; 49 percent claim to have a retirement plan but it is not written down; 37 percent do not have a plan. Whether it is in sports, business, or investments, all the research shows that one must have a written plan to have the maximum chance of reaching any goal. If it is not written down, it is too easy to get sidetracked, particularly if the goal, such as retirement security, takes decades.
Savings Goal: The median savings goal for all workers was $500,000. This number was consistent for virtually all workers, whether they are in their 20s, 40s, 50s, or 60s. However, for those in their 30s, their median savings goal was $1 million. Median means that half wanted to save more than $1 million and half wanted to save less than $1 million. When one looks at the mean (the arithmetic average) savings goals, it was $3,063,000 for all workers; $4,313,000 for the 20s; $2,426,000 for the 30s; $2,478,000 for the 40s; $3,378,000 for the 50s; and $4,035,000 for those in their 60s. These are incredibly high numbers.
Actual Total Household Savings: For all households, 17 percent have saved more than $250,000. It breaks down: 3 percent for those in their 20s; 13 percent for the 30s; 17 percent for the 40s; 28 percent for the 50s; and 32 percent for those in their 60s. Although saving more than $250,000 is great, most have far less than $1 million and certainly not the huge savings goals in the paragraph above.
There is a huge gap between reality and desire. That’s when people become unhappy. This shows that most people would rather live in a fantasy world than do the hard things required to reach a long-term goal, whether it be obtaining a CPA, MD, JD, or Ph.D.; or reaching one’s retirement savings goal.
A Retirement Back-Up Plan: So many workers plan to work past age 65 or while retired because they need the income. However, what if you are forced to retire earlier than planned, such as being laid off by employers during the Great Recession? Only 25 percent of those in their 50s, and 29 percent of those in their 60s, have a back-up plan. Many experienced layoffs or reduced salaries; their houses dropping in values; and 2 stock market crashes (the 2001-2002 Dot-Com and the 2008-2009 bust). That’s why so many are taking Social Security at age 62, giving up half the retirement benefits compared to waiting until age 70.
One of the biggest problems I face (with the thousands I’ve met at my seminars during the last 5 years) is getting people to live in reality. There is no substitute for living below your means; working an extra job or starting a side business; and learning how to safely invest your money. © Harold Wong 2013