The baby boomer generation imagines retirement as a relaxed experience, but their toughest challenges actually may lie ahead, according to an analysis by Bankrate.com.
“Baby boomers are going to work longer than they'd originally expected. They're going to have to save more than they'd planned. And they're going to have to consume more modestly in retirement,” said Bankrate.com research and statistics editor Chris Kahn.
Boomers take cues from their parents, but with a fundamentally different economic environment and private employers' desertion of pension plans, there are precious few lessons to be learned from their progenitors.
“We're trying to put retirement in context, and what we've found is that using your parents as a model does not make for an accurate comparison,” Mr. Kahn said.
The strategies for planning retirement finances that worked in the 1980s and 1990s just aren't going to get you as far today.
“The rule of thumb was if you remove 4% of your portfolio annually, it'll last as long as you do,” Mr. Kahn said. “Now, that 4% should be dropped to 2.5% to 3%.”
“It's a fool's errand to predict where the market will go, but starting yields at current depressed rates will have a big influence on how long that nest egg will last,” he added.
Research Affiliates LLC, which provided data for the study, along with Morningstar Inc., found that using current market yields, a traditional 60%/40% stocks/bonds portfolio once would have been a secure source of income for more than 30 years. But under prevailing market conditions, that portfolio would be entirely depleted after 25 years. Savings would decline even more quickly, with a return to faster inflation and higher interest rates, as experienced from the 1960s through the early 1980s.
Mr. Kahn's advice is simple: Be aware. “There's a lot you can do to help yourself, but it's primarily about always using common sense and reaching out for expert advice when necessary,” he said.
“As you near retirement, you should certainly consider staying on the job another four or five years,” Mr. Kahn said. “Beyond that, you need to sit down and really develop a plan for the upcoming phase of your life.”
“It's not the time to just relax on the porch and watch your money dwindle.”