The 79 million individuals who are lumped together under the Boomer generational title have led fairly different lives, have diverging priorities and therefore hover at varying levels of retirement preparedness.
A recent report by the Insured Retirement Institute documents the differences between early (those aged 61-66) and late (those aged 50-55) boomers, and concludes that there are two distinct subsets within the blanket definition of a Boomer, and need to be looked at separately from a financial planning perspective.
The report, “The Great Divide: Financial Comparison of Early and Late Boomers’ Retirement Preparedness” found one of the most important differences between the two Boomers from a retirement planning perspective was the migration from the defined benefit plan (DB) to the defined contribution (DC) plan, which was facilitated by the Revenue Act of 1978, only a few years before the last of the late Boomers entered the workforce.
Thirty-nine percent of early Boomers reported that they will rely on a DB plan as a major source of income in retirement compared with 34 percent of late Boomers. Meanwhile, 43 percent of late Boomers said that a defined contribution plan will be a major source of income in retirement compared to 36 percent of early Boomers.
The 401(k)-like plans that many late Boomers are relying on present them with a unique challenge when compared with the DB pension-like plans their older siblings are living off of: The 401(K)-like plan will not automatically disperse the money as an annuity payment. This renders late Boomers with a burden of responsibility for a lump-sum of cash that can easily be usurped by other needs.
Late Boomers may want to look into annuities in order to provide them with a guaranteed source of income throughout their years in retirement, the report states.
Annuities and other guaranteed income products are a good fit for late Boomers as the report found that close to one-fifth of late Boomers and one-quarter of early Boomers indentify guaranteed monthly income as the most important trait in a retirement investment product.