Saturday, February 3, 2007

The Graying Of Baby Boomers - Retirement Paradise Lost and How To Gain it.

The Graying of the Boomers: Retirement Paradise Lost (And how to regain it.)

February 2, 2007

SOURCE: InsuranceNewsNet, Inc.

In her book Thinking Out Loud American journalist Anna Quindlen wrote:

Somewhere between a third and a quarter of all people living in America today were born between 1946 and 1965 and if you think you’re tired of hearing about us, you should try being one of us.

Now that the baby-boomer generation is turning into their parents, the future isn’t looking as bright as what analysts earlier predicted. In fact, the general buzz seems to reflect Quindlen’s sentiment: it won’t be easy being gray.

Starting 2008, baby boomers born in 1946 will hit their 62nd year and become eligible for Social Security retirement benefits. So what’s the problem? Several years ago analysts estimated between $10 – 40 trillion from the current generation of senior citizens to the baby boomer generation. Financial experts painted a rosy retirement scenario for boomers. Now things do not look as rosy.

The impending retirement of at least 82,826,479 baby boomers is expected to stress the federal budget as they collect Social Security and Medicare benefits. Social Security, Medicare and Medicaid, which cost $1 trillion in 2005, are expected to eat up 75% of the total federal budget by 2030. By 2050, people over 85 will rise to 19 million.

How did this thing go from trillions of dollars to this?

For one, boomers have a longer life expectancy. Former Federal Reserve Chairman Alan Greenspan raised concerns over Americans living longer and medical costs outpacing personal incomes. Meanwhile current Federal Reserve Chairman Ben Bernanke said Social Security, Medicare and Medicaid would rise rapidly in the next 10 years with devastating effect of entitlement spending on the country.

Another contributing factor to the future fiscal problem is that boomers have been spending their savings away. Dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University James W. Hughes described them as a generation of consumers - not savers. Without sufficient private savings, retiring on schedule may not be realistic.

If the situation is a disease approaching critical stage, the cures proposed by the Social Security and Medicare Boards of Trustees will be bitter to most. Getting Social Security back on track the immediate imposition of an additional 16% payroll tax. An alternative to that would be reducing benefits by 13%. To keep Medicare afloat will take 121% tax increase. An option to that would be a 51% reduction in services.

Federal Reserve Chairman Ben Bernanke has the same opinion. He cautioned members of Congress who are batting to cap tax rates must face the fact that low tax rates are sustainable if outlays and entitlements are pruned down.

Currently, payroll taxes from five working Americans is needed to finance the Social Security and Medicare benefits of a single retiree. Twenty-five years from now only three workers will support each retiree. According to Federal Reserve Board the declining worker-to-retiree ratio is not only expected to bring down the standard of living. It will increase tax burden by as much as 33% if retirement benefits remain unchanged.

Speaker Nancy Pelosi is banking on the AmeriSave Plan to provide providing middle-class families with retirement security. The proposed AmeriSave Plan will increase and upgrade existing retirement accounts - including the 401(k)s and IRAs. The plan’s “AmeriSave Match” will match first $1,000 contributed to an IRA, 401(k), or similar retirement plan dollar-for-dollar. AmeriSave will add the benefit of compound interest to the guaranteed benefit of the Social Security of some 100 million Americans.

“We will strengthen retirement security without adding to the deficit,” vows the Speaker. “The AmeriSave Plan will increase national savings and grow our economy while helping middle-class families prepare for a brighter future.”

The prospect of being gray and retired may look bleak but if you’re 45-years old you still have about 240 paychecks ahead of you. So it isn’t too late. But if you’re not big on leaving your future in the hands of the President, Senate and Congress, here’s what you can do now on your own: set up direct deposit.
Direct deposit is a good way to get Social Security and other federal benefit payments. Because it is predictable and dependable, it also provides better control over financial resources and time.

To get a paycheck direct deposit up and going requires paperwork with employees must accomplish with their employers. Treasury Fiscal Assistant Secretary Donald Hammond said direct deposit is safer and more convenient than paper checks and encourages baby boomers to sign up for direct deposit for its significant benefits and cost savings for American taxpayers. John Rother, AARP (formerly American Association of Retired Persons) Group Executive Director of Policy and Strategy strongly agrees describing it as making good sense any way you look at it.

Respected economic journalists and business forecasters Knight Kiplinger also has a number of tips for gaining financial security before hitting the gray wall:

Get insured against disability, serious illness, disability, untimely demise and other risks before acquiring any financial assets.
Keep credit cards in check and limit its use for buying properties with long-term values such as house or education plans. Everything else should be paid with cash.
Make a monthly deposit to a mutual fund, money market or brokerage account before making any other checks.
And finally, Kiplinger says instant gratification is fun but it won’t fund long-term financial goals. The price of a more secure future is living a simple life for now.

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