Retirement Planning > Retirement Investing

Battered Boomers Shifting Retirement Goals and Mindsets

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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.

Medical bills aside, Social Security reforms may also take a heavy toll on people who rely on the program as a primary source of income. Proposed changes to the CPI and annual cost-of-living adjustment won’t threaten current retirees, but when combined with impending inflation, they could damage younger Boomers’ spending power late in life.

Higher Expectations In addition to rising costs and longer lifespans, retiring Boomers may simply expect more out of their golden years than generations past. “As the most highly educated, professionally experienced, most tech-savvy generation in our country’s history, many retirees want to stay professionally and socially engaged well their final and arguably best phase of life,” said Marie Langworthy, author of “Shifting Gears To Your Life and Work after Retirement.”

Pricey vacations are highest on the list of extra expenditures. “Boomer retirees now account for 80 percent of all money spent on travel, and travel is expensive,” said Langworthy. “We want to continue to come and go as we please.” Whether or not frequent travel will be financially feasible, this goal may explain why soon-to-be retirees are expecting to spend so much.

Proper Planning  Ultimately, Boomers are going to need to better strategize both their investments and expenditures. “You need a portfolio that has both safe assets and assets that will grow over time, so that you have enough to beat inflation, as well as to ideally generate future income,” said Ellie Kaplan, CEO and Founding Partner of Lexicon Capital Management. “In retirement, your portfolio becomes your paycheck, and it has to last from the day you retire onwards for the rest of your life. 

Given their long lifespans, Boomers may also need to become more frugal than their parents and grandparents. “Arguably, nobody in this country saves enough,” Walper addded. “Most people think more about assets and income generation, rather than understanding what they’ll need to spend.” While expense reduction is far from an ideal retirement plan, it may be necessary for people facing long retirements with uncertain savings.