As the retirement landscape in America continues to evolve, baby boomers are finding themselves facing a future where many are unsure if their savings will last. Yet, not too long ago a stable, secure retirement was well within reach for many working Americans. Thus, it’s logical to ask the question, how did we get here?
The world has changed tremendously over the past 70 yearsstarting around the time Social Security was createdincluding the way we save for retirement. Unfortunately, more recent history has created some bad savings habits that could very well define the retirement future of the next generation of workers. Not only do boomers have to worry about their own financial future, they need to be concerned about how their children and grandchildren view saving for retirement based on their example.
But history doesn’t have to repeat itself. Some small changes in behavior from boomers today can help to set a solid foundation for building the more secure retirement plans of tomorrow. Last week, we discussed the “good.” Here are the “bad” and “ugly” habits we should avoid and some lessons to grow savings.
The Bad and the Ugly
The first sign of these bumps came in the early 2000s when the tech bubble burst. But those bumps turned into huge potholes in 2008 with the mortgage crisis and impending financial collapse, sending many boomer retirement plans completely off the road. From 2000 to early 2003, the stock market (as measured by the S&P 500) lost 41 percent of its value. Then, after recovering from that drop and reaching new heights, the market lost 51 percent of its value, this time in a span of only 17 months between October 2007 and February 2009 (“The Callan Periodic Table of Investment Returns,” Callan Associates, 2011).
But it was not only stock market performance and the status of their 401(k)s that had boomers in a panicit was the entire economic landscape and changing retirement picture. It seemed that too many factors were trending negatively and the method for retirement planning used by their parents no longer worked or existed for the boomers.
Many of those who had counted on their home as a retirement asset now found themselves underwater. Defined contributions plans have all but replaced traditional pension plans, so there are no longer many guarantees. Market volatility is increasing, leaving many boomers more uncertain about their retirement portfolios than ever. Finally, the outsourcing of manufacturing jobs has exacerbated unemployment, so many boomers are facing layoffs just when they should be hitting their prime earning years.
As a result, many boomers have been forced to scale back their expectations or even delay retirement in order to rebuild their lost savings. This is a sad reality for these boomers, but it can be even more tragic if their children and grandchildren continue with many of their bad savings habits.