More than any prior generation, the soon-to-be-retiring baby boomers are concerned with continual earning and spending as they age. A recent State Street Global Advisors survey found that 80 percent of defined contribution (DC) plan participants are dead-set on a guaranteed monthly payout, even if it reduces their access to savings. Other findings include:
- 55% view income generation as their top priority versus investment returns (27%) or preservation of capital (25%).
- 69% believe they’ll need a monthly guaranteed income stream in addition to Social Security.
- 64% plan to take monthly withdrawals to cover their livings expenses.
Similarly, a 2013 Insured Retirement Institute study found that only 42 percent of older boomers (age 61-66) and 25 percent of younger Boomers (age 50-55) are confident they’ll have enough money to live comfortably through retirement. This shift in mindset and confidence levels is likely due to the combination of longer life expectancies, rising living costs and recession-damaged retirement accounts.
Volatile Investments The financial crisis has no doubt made retirement more difficult for the boomers. “Fifty- to 60-year-old investors were the most severely impacted by the recent recession, and they don’t have time to recover their assets before they retire,” said George Walper Jr., president of Spectrem Group. Those who were aiming for early retirement are having to work longer and save more, and investors who failed to take advantage of the 2008-2009 upswing in the stock market are suffering the most.
Still-low interest rates aren’t helping, either. “When interest rates are so low, it’s hard to walk people into true income-generating investments,” Walper said. With rates still hovering in the 4s – and with inflation on the horizon – hopeful retirees are hesitant to rely on investment returns in the long term.
Longer Lives Most boomers still want to retire in their 60s, but longer life expectancies are creating a much greater need for both savings and continual income. 20, 25, and even 30+ year retirements exacerbate the risks of stock market fluctuations, inflation and unexpected expenses, any of which can devastate a portfolio.
Of course, longer lives also tend to include far greater healthcare costs. “The politics surrounding Obamacare sort of hide the fact that when people live longer, it becomes much more expensive over time to pay for all of these services,” according to Walper. While seniors are living longer, they’re not always living healthier, and both medical procedures and long-term care can dramatically increase end-of-life expenses.