Can Baby Boomer Retire?

Baby boomers need to take hard look at whether they're saving enough, experts say

Source: The San Diego Union-Tribune | February 21, 2010

Roger Showley

When baby boomers were in their teens and 20s, they didn't trust anyone over 30 and couldn't imagine hitting 64. Well, with the first boomers hitting that unmagical age this year -- the one The Beatles sang about many years ago -- the $64,000 question is whether this giant generation of 78 million, born from 1946 to 1964, can afford to retire.

Of course, some boomers have saved and planned well. They have already left the work force and have learned to fly an airplane or are spending time with their grandkids.

Others face a reality check that recalls Aesop's tale of the grasshopper and the ant. They played and spent and now, typically, have saved only $84,000 -- an awfully small nest egg that has to last for many years.

"The fundamental philosophy of retirement has changed," said Jason Buol, chief economist and research analyst at Private Asset Management in San Diego. "Historically, people have thought, 'Once we get into our mid-60s, we can retire and don't have to work anymore -- we'll live into our golden years forever and forever from that point on.' "

Buol, who at 33 often addresses groups of boomers 20 to 30 years older than himself, said statistics show that the elderly are living into their 90s.

"You have to take a realistic look at your financial situation -- your expenses, assets, liabilities -- and figure out, based on that information, 'Where do I stand now and where do I want to be when I make the decision to retire?' " he said.

But it isn't too late for the "Me Generation" to get things right, even if they continue to face the responsibilities of children who have boomeranged back home after college or their own parents who require an increasing level of assistance.

Luckily, with a long life span ahead of them, they can make up for financial mistakes and oversights through careful planning and strategizing -- and recover whatever losses the recession might have dealt their savings and investments.

There are some steps to take before retirement, but there's also, for some, a pot of gold on the horizon.

Count on a windfall: One thing in the boomers' favor is the thriftiness of their parents. If the "greatest generation" saved well, bought a home and paid off the mortgage in San Diego, the equity might be enough to see them through in their declining years and give you and your children a boost.

"Most of our clients don't want to count on inheritances," said financial Scott Wolters, 57. "But it is happening quite frequently."

Work longer: If you have a job, don't retire too early if you can avoid it, experts say. Demographers say many employers actually fear the departure of too many boomers, because Generation X isn't big enough to fill their shoes. Perhaps you can reduce your hours in the last year of your employment and continue to collect health benefits. If you leave your company, sometimes you can be hired back as a consultant. If you've lost your job, you can look for a new one, perhaps in a different field that plays off your personal interests. You even have time to go back to college and get a new degree or additional training in a new field.

But Buol said you might have to relocate to get a suitable job.

"Perhaps your skill set is not in demand in San Diego but perhaps is in demand in some other state, like Arizona or Nevada," Buol said. "Everybody's hurting, granted, but if you still have a usable skill set, it's something to consider about migrating to another area, and you would be able to take advantage of that."

Make a plan: Andrew J. Costanzo, 62, who recently moved his Costanzo Financial Group from Pittsburgh to Carlsbad, said planning for retirement should begin at least five years beforehand.

"I tell my clients that most people spend more time during the year planning for one week of vacation than the ultimate vacation, which is retirement," Costanzo said. "You need a road map for your retirement."

Analyze your health care coverage: Medicare kicks in for most people at age 65, but it doesn't cover all expenses. And one big one is long-term care for Alzheimer's and other debilitating afflictions.

"Health care expenses are phenomenal and I think are going to get worse," Costanzo said. "I think that is the major risk that baby boomers are going to face in the future."

With such costs currently approaching $7,000 per month for in-home nursing care, that could cost $84,000 a year -- about the same as typical boomers have saved their entire lives.

"It's pitiful," he said.

Count on Social Security: But the question for boomers is when to start collecting it. You can begin at age 62, but if you wait until 70, you might see a check for twice as much. That premium will come in handy if you live 25 years after that.

"They're going to cash in as soon as they can, unfortunately," Costanzo said of many of his clients. "It's just the way people think."

Rearrange your investments carefully: Take advantage of the catch-up provisions in 401(k)s and IRAs if you haven't set aside as much in savings plans as the law provided.

"You can increase your savings in a multitude of ways," Buol said.

You can invest part of your savings to be secure for the short term and invest the other part in growth stocks and bonds that, even if the market drops, you'll have time to recoup any losses.

"Review your account every year and rebalance it," Wolters said. "If you had 70 percent in your portfolio in stocks and 30 percent in bonds, a year later, sell 10 percent of your stocks and buy bonds." He said there are many questionnaires and scenarios available to determine what works best.

However, Costanzo said being too conservative can be fatal to long-term planning, because inflation can easily eat up a portfolio that doesn't grow with the economy.

Stay married: Sociologists and demographers report that married or partnered people live longer and prosper more than singles. In other words, don't get divorced, but if you do, get married again.

"Single people have a problem in retirement -- physically, financially," Costanzo said. "And there's also a quality-of-life standpoint. People are happier when they're with other people."