Boomers Ill-Equipped For Retirement, Surveys Find

Boomers planning to have enough funds for retirement are in for a rude awakening, according to 2 newly released studies.

The reportsone from the AARP’s Public Policy Institute entitled, “Beyond 50: A Report to the Nation on Consumers in the Marketplace” and the other an annual “Retirement Preparedness Survey” from Merrill Lynchcollectively portray boomers as lacking the resources and time needed to prepare for retirement. Many, too, have misconceptions about investment vehicles and how much money they’ll need to have saved once they stop working.

“There’s a lack of understanding among boomers as to how much they have to fund for their retirement,” says Cynthia Hayes, first vice president, Employer Plan Solutions for the Retirement Group at New York-based Merrill Lynch. “In light of increasingly long life spans, that doesn’t bode well.”

Adds George Gaberlavage, an associate director for AARP’s Public Policy Institute, Washington, D.C., “Boomers planning for retirement are faced with a far greater complexity of products and less time in which to make decisions about them than any previous generation. In terms of the future of retirement planning, that’s deadly.”

A companion AARP poll released with the “Beyond 50″ report supports Gaberlavage’s point. Of 1,900 individuals polled between March 25 and April 3, 2004, 27% of boomers (ages 40 to 57) say they are worse financial managers than their parents. The figure was more than twice the percentage of those aged 58 or greater (10%).

In the Merrill Lynch survey, 56% of respondents flagged personal savings and defined contribution plans, such as 401(k)s and 403(b)s, as their primary source of income. Yet at an average age of 46 and an income of $55,000, respondents accumulated average savings of $51,000enough for one year.

Respondents also said they expected to withdraw on average 21% of their savings each year during retirement (vs. the 4% to 6% that Merrill Lynch recommends). A large majority64%said they do not have a financial plan that identifies the amount of assets needed for retirement and how to build those assets.

The wealth of financial planning data available through the Internet and other media is not making matters easier for boomers. The challenge that many face, says Gaberlavage, is to distinguish credible from non-credible information.

He advocates greater cooperation among financial services companies, federal and state agencies, and nonprofits to strengthen consumer education on financial management and planning. They must also develop “touchstones” or methods that will enable consumers to compare more easily features and fees of financial products.

“The companies that do an effective job of cutting through the complexity and providing good, impartial presentations of the material will be the ones who receive favorable treatment from boomers,” he says.

Hayes also applauds easier product comparisons but says efforts to achieve this will do little to make better investors of most people.

“There’s one flaw in this argument, which is that people will read and understand the literature if you make it transparent enough,” she says. “That’s true of only a small portion of the population. Most folks don’t want to take the time to become educated investors.”

To boost retirement savings, Hayes says producers should encourage employers to establish automatic enrollment in 401(k)s (uninterested employees would have to opt out) to allow employees to contribute after-tax dollars to their retirement plans and to persuade new employees to roll over previously established retirement savings into the new employer’s 401(k).

And, she adds, both employers and employees need to prepare for another fact the Merrill Lynch study revealed: 15% of respondents (of which 15% are boomers aged 45 to 59) never want to retire.

“This partly represents a lifestyle decision,” says Hayes. “But the figure also tells us that boomers see work during the retirement years as a way to enhance their mental and social health, in addition to their financial well-being.”


Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.