The first of the 78 million Americans of the baby boom generation (individuals born between 1846 & 1964) start turning age 65 in 2011…an age which has been considered “normal” retirement age. As this increases over the coming years, so will the retirement finance burden.
A couple of interesting statistics about entitlement programs:
1. The number people enrolled in Medicare will grow from 47M to 80M in a mere 2 decades.
2. Enrollment in SS will grow from 44M to 73M during same time frame.
At the same time the American workforce will grow more slowly, therefore the taxes to finance these benefits will significantly decrease.
Compounding the baby boomer retirement issue is the findings published in a recent article in the Wall Street Journal. The savings amassed in the 401k plans of boomers falls well-short of their retirement funding needs.
“The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal.” –WSJ
This fact could be easily explained away by saying that boomers simply did not save enough for their retirement years, but I would argue that part of the issue can be found in the design of the typical 401k plan which is a great accumulation tool in early savings years, but may not have protection features as participants near retirement age.
The other retirement threat for boomers that has not been bantered about in the media is the risk of incurring a major medical event in retirement—the cost of which could significantly erode retirement savings. What happens once savings is entirely depleted and you still need long term care/skilled nursing? Medicaid may kick in to cover these costs…another entitlement program which is probably under-funded.
So how should boomers prepare for the coming retirement tsunami? The years immediately preceding retirement need a careful strategic approach that differs from previous accumulation years. Managing investments for protection becomes important. Price out the cost of a long term care insurance policy early, as the cost continues to grow as you get older Find an advisor who can help you manage these issues in concert.
