Why boomers’ retirement plans could leave them bust
Many near-retirees don't have any income plan whatsoever; others waiting until the last minute
Earlier this week I reported on a new joint survey by the Consumer Federation of America (CFA) and the Certified Financial Planning Board (CFP Board) that documented the benefits of having a comprehensive financial plan — and the sad fact that the majority of Americans still fail to utilize this basic tool.
The survey showed that only 31% of respondents said they a comprehensive financial plan. But those that do are more confident about their financial future and described themselves as living comfortably — as comfortably as those who had more money, but who no plan for how to manage it.
Now, there’s even more disheartening news. A new survey by Allianz Insurance Company of “transition boomers” — people ages 55 to 65 who are within 10 years of retiring — found that one-third of them are unsure of how much money they will need to cover basic living expenses in retirement.
Even more alarming, 43% of survey respondents said they won’t focus on retirement income strategies until they are less than five years from retirement — when it may be too late to improve their chances for a secure retirement. Some even said they would until they are less than a year away from retirement to start planning how to budget once their paychecks stop, according to the online survey of more than 1,000 individuals conducted in June.
Not only do these near-retirees not have a plan for patching together sufficient retirement income to last them the rest of their lives, some have no clue about the insidious toll that inflation can inflict on their future purchasing power. Respondents were asked to predict the cost of a loaf of bread in 2022 (based on today’s average price of $2.50). While 75% predicted the cost would double to $5.00 in 10 years, a full 25% showed unfamiliarity with inflation.
“It’s alarming that so many boomers on the cusp of retirement are still unclear about the basic factors which determine their ability to fund their lifestyle once they stop working,” said Allianz Life President and CEO Walter White. “When you consider rising healthcare costs and the devastating effects of inflation on purchasing power, the fact that so many transition boomers are still confused about retirement income planning is a significant issue which urgently demands more education.”
The good news for financial advisers is that many retirees desperately need your help. The bad news is they may not realize it.
We have a tremendous financial literacy deficit in this country. In future weeks, I’ll be writing about innovative approaches to boost the public’s money IQ. The latest trend in “gamification” — using interactive games to engage and educate — may be our best hope for a future generation of savers and investors.
But for boomers on the cusp of retirement, it may be too late to play games with their money.
The overwhelming majority of respondents (94%) to the Allianz survey said they expect Social Security to play a role in their retirement income, followed by pension plans (46%), defined contribution plans such as 401(k) plans (43%) and other investments (30%).
Nearly one third indicated they expect some retirement income from part-time work. Working longer can be a good idea because it allows more time to save, reduces the number of years you need to live on your savings and allows you to delay collecting Social Security benefits until they are worth more later. But it also may be a bit unrealistic. Studies show that many older people can’t work as long as they had hoped due to layoffs, health issues, or the need to care for other family members. And those who lose their job in their 50s or later may never find another job.
This sense of optimism about planning to work in retirement to make ends meet reminds me of the movie, “The Most Exotic Marigold Hotel”. If you haven’t seen this fabulous film, check it out. It tells the story of a group of British retirees who trade their dire prospects of living on a fixed income in damp, gray England for the promise of a glorious next chapter in sunny India. Spoiler alert: Things don’t always go as planned. Throughout the movie, Sonny, the ever-optimistic owner of the ramshackle hotel, repeats :”Everything will turn out alright in the end, and if it’s not alright, then it’s not the end!’
Well, I guess the end is not near for millions of aging boomers, because their retirement plans are not alright. Many clearly need help creating retirement income plans. Advisers need to arm themselves with the latest information on Social Security claiming strategies, retiree health care costs and creative ways to generate income in today’s low-interest rate environment. Are you up to the task?
Learn more about reprints and licensing for this article.
