Boomers’ retirement plans in jeopardy
The economic downturn is forcing some baby boomers to raid their 401(k) plans and halt their savings, which could have a negative effect on their retirement, according to a new study.
The economic downturn is forcing some baby boomers to raid their 401(k) plans and halt their savings, which could have a negative effect on their retirement, according to a new study.
The study, “The Economic Slowdown’s Impact on Middle-Aged and Older Americans,” was commissioned by Washington-based AARP.
The study showed that 27% of people 45 to 64 said they had postponed retirement plans because of the recent economic downturn.
Almost one-quarter of the middle-age and older workers were prematurely taking money out of their 401(k) plans and other investments. Those in the younger half of the age group (45 to 54) were taking such actions as postponing paying bills (27%) and cutting back on medications (17%) in light of the economy.
The data were collected by Woelfel Research Inc. of Dunn Loring, Va., from a telephone poll of 1,002 people 45 and older conducted April 12-23.
About 63% of the respondents said they owned stocks individually or through mutual funds, and 72% said they had lost money on those accounts in the previous 12 months.
Eighty-one percent of respondents said the economy was in fairly bad or very bad condition, and 75% believed that it was getting worse.
When asked about the economy’s effect on them, 66% of respondents said they found it more difficult to pay for essential items such as food, gas and medicine, and 53% said they found it more difficult to pay for utilities.
Reflecting a need for ready cash, 33% had stopped putting money into a 401(k) plan, individual retirement account or another retirement account.
Meanwhile, 50% of respondents said the value of their 401(k) plan had dropped in the previous year, and 36% said the value of their home had decreased.
Industry leaders said they believe that market volatility and the uncertain economy have made baby boomers more nervous.
“I think they were nervous before, and they’re even more nervous now,” said Aamer Baig, managing partner of the financial services practice at Diamond Management and Technology Consultants Inc. in Chicago.
“Even before the crisis hit, they were dealing with challenges that their predecessors never did,” he said.
Mr. Baig said many baby boomers are concerned about watching their retirement savings dwindle and are contemplating taking another job or working longer before retiring.
The AARP study showed that among those who had lost money in stocks, 23% said those losses had prompted them to postpone retirement. Another 31% said that market losses had led them to change their investments.
There’s no question that baby boomers are nervous about the economic climate, said Mike Gallo, a New York-based senior vice president of retirement income at New York Life Insurance Co.
“They’re definitely anxious; I’m anxious too,” said Mr. Gallo, whose firm sells annuities.
He believes that he and other baby boomers are worried about losing money and may consider shifting out of equities for something more certain.
“We’ve gone through two bubbles in the last eight years, and I think baby boomers are saying they are looking for guarantees,” Mr. Gallo said.
Advisers are the most important group to help clients maneuver through this difficult economy, according to Larry Roth, chief executive of AIG Advisor Group, a subsidiary of American International Group Inc. of New York.
He said that boomers are nervous when they see their retirement accounts waning.
“The good news is that the advisers we work with can provide the type of product or service baby boomers need, but advisers must keep telling them to save and continue putting money away,” Mr. Roth said.
He’s concerned about baby boomers’ reducing their 401(k) contributions.
“Some clients are saying they’ve tried to max out their 401(k) every year, but their expenses are up, and their 401(k) is going the wrong way,” Mr. Roth said. “They’re saying that they need an extra $500 a month, and it’s a little scary.”
“Some baby boomers are wondering if they’ll have to work a few years longer,” Mr. Roth said.
Some of the boomers’ actions could adversely affect their savings over the long term, Tom Nelson, AARP’s chief operating officer, said in a statement.
“It may be years before we realize the full scope of the current economic crisis,” he said. “Taking money out of your retirement savings has a compounding effect because that money is not allowed to grow at a time when you have fewer working years to replace the losses.”
E-mail Lisa Shidler at [email protected].
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