Did you know that 10,000 baby boomers will turn 65 every day for the next 19 years? How many of them will be prepared to retire?
According to recent statistics, 36% of us say we do not contribute anything at all to retirement savings.
No surprise then that a recent AARP survey says 40% of boomers plan to work until they drop. The problem is how many of the boomers will become unable to continue to work despite their best intentions. With an average life expectancy of 83, boomers will live 18 years beyond the customary retirement age of 65. How many 83 year olds can continue to work or, if they do, bring in income sufficient to survive?
Boomers’ average household earnings are $53,000 a year. Those who have saved for retirement, maybe 60% of boomers, have average savings of $500,000 to $1 million. But many have taken a hit in the down economy. Assuming they are worth this much, and a withdrawal rate of 5% on $500,000, that’s about $25,000 a year from 65 to 83 or half the average household earnings boomers are used to. To maintain a lifestyle on average boomer earnings, boomers will have to have $1 million in savings to cover their retirement years.
It seems that the one part of a retirement plan boomers have actually decided upon is their plan to relocate when they retire—59% of them plan to move, I assume, to warmer climates.
What does all of this tell us? Boomer savings rates are low, but retirement expectations seem high.
It looks like boomers need a dose of reality.
It’s time for all boomers to take a hard look at their retirement. The first step is to figure out where you are. This requires that you create an income statement and a balance sheet. You cannot plan for the future if you don’t know your current status.
How much income do you bring in and what are your average expenses? If your average household earnings are $53,000, how much do you contribute to saving? If you know you need $1 million to keep up your lifestyle after retirement, how far along are you in saving?
Let’s say you are 55 years old and have $500,000 in savings for retirement. If you have average boomer earnings, in order to maintain your lifestyle, you have to save $500,000 over the next ten years. That’s basically saving your boomer average income of $53,000 a year.
If you can’t save all your income for retirement for the next ten years, then what? Time to focus on changing your lifestyle. What if you change your lifestyle and live on less. That will certainly help. In order to figure out how to live on less, you have to know what your current expenses are. Are you spending your disposable income in paying off high interest credit cards? Are your mortgage payments taking most of your disposable income? Are you borrowing from a low interest line of credit to pay off those credit cards? What if you were able to decrease your mortgage payment or pay off the credit cards?
Suppose you drastically reduce your expenses now by selling or renting your McMansion, making do with your older car, and cutting out spending on wants, not needs. What does this do? Well, you not only put yourself in a position of saving more for retirement, by decreasing your lifestyle, you get yourself used to the lifestyle you will have in retirement.
The point is – once you have an idea of what you currently take in and spend, you can make assumptions about the future that will help you with your retirement plan. Running retirement scenarios for yourself is easy with the Internet. Every bank, brokerage firm, and insurance company website has free retirement calculators you can use to figure out a plan of action.
Is it too late to start a retirement plan? No. It’s never too late to start.
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.