Boomer Generosity

What would do if you could make your retirement plan last generations?

The assumptions you make about how much money you will need in retirement are probably the most difficult exercise in the whole of retirement planning. The unknowns are so numerous that simply thinking too much about it gives many people the incentive to simply ignore the question. Taxes and inflation play a role in how much money we will need along with the condition of our health, our portfolios and our living arrangements. Who could possibly guess with any accuracy what those costs will be?

Yet, some of us can with certain investments. If you can wait until you are 70 1/2 years-old to begin taking your distributions from an IRA, and you take only the minimum amount needed, you may be in a position to make that IRA last much longer, across generations. Called a Stretch IRA, the sort of planning can create untold wealth for a child or grandchild.

More on the Stretch IRA from Paul Petillo, managing editor of Target 2025.com and a fellow Boomer.

The impact Of The Financial Crisis On The Retirement Savings.

Some question whether the boomer generation has lost most of their savings in this recession. The new brief by The Center for Retirement Research at Boston College, Return on 401(k) Assets by Cohort (March 2010, Number 10-6) report that early baby boomers, those born between 1944 and 1950, may have already recovered up to nearly half of the $1 trillion or so that were lost in the recent recession. While those with balanced portfolios may have fully recovered.

The cohort at the greatest risk appears to be the Late Boomers, who have experienced a less favorable investment environment over their careers and will need extraordinary returns just to end up as well off as the Early Boomers are today. Generation Xers, given their shorter careers, have faced the worst environment, but they have more time to catch up.

The center analyzed the potential returns and losses sustained by IRAs and 401K plans by ten-year age cohort. The matrix of internal rate of return on lifetime contributions showed how your 401(k) or IRA would look at the time you actually retired.

To see the full brief, visit the Center web site.

http://crr.bc.edu/

http://crr.bc.edu/images/stories/ib_10-6.pdf

The problem with the retired Boomers (and their retirement savings) stem from the fact that they are on a fixed income and they stop contributing to their retirement accounts. They lost the ability to maintain their standard of living after they stop working, and they were not able to adjust their lifestyle and spending habits. The time frame from the peak of the market in 2007 to the trough in March 2009 and up to 2010, these Early Boomers have lost a lot of money as well as the ability to replenish their retirement funds. They have also lost the ability to be able to take advantages of current opportunity for these long term investments such as stocks and real estate.

Boomer Investors are Better Off?

Where you are in the retirement planning stage of life has more of an impact on your chances of recovering your pre-2007 portfolio values than you might think. Having enough to retire on is important. But some Baby Boomers had an added boost that may not be available to younger investors, even if they work longer and contribute more to your 401(k).

The old “time is on your side” adage often applied to the earliest investor may only be partially true. While time does play a role in how much you recover should your investments falter in a downturn, it may only do so because you have a longer contribution horizon.

The newer “I’ll just simply work longer” response many middle aged investors are reciting of late may not be enough either. The result of their longer careers will have a similar impact on their retirement portfolios that their younger cohorts will experience: more lifetime contributions.

None of these two previously mentioned groups, what the Center for Retirement Research at Boston University describes as the Gen Xers (30-year-olds) and the Late Boomers (40-years-old), will ever equal the earning power of the stock market that the Early Boomers received. This group of fifty-plus-year-old investors, had they been invested during the heyday, or what is referred to in the report as the “run-up from 1982-2000″, will have benefited greatly. In terms of real retirement, they are far better off because of those years than their younger cohorts may possibly ever be.

To read more of this article by Paul Petillo, managing editor of Target2025.com and a fellow Boomer, click here.

Getting Help Soon Matters

Each of us knows someone who has experienced a financial disaster in the last two years. Not the sort of sudden destruction that was uninsured or perhaps unexpected. Instead, the sort of financial disatser I am referring to is the slow creep of bad planning, the accumulation of debt that you seem to have no intention of stemming, and the continued lack of understanding about your personal finances.

The NFCC’s (National federation of Credit Counseling) recent survey of financial literacy offers a chilling look at where we were, where we have progressed and how far we have yet to travel.

In 2007, only 39% of the adults nationwide kept track of their finances. The survey shows a slight improvement to 43% or two in five adults now keep some sort of eye on how they spend. Of those who don’t pay very close attention, 53% have no budget to speak of with over 11 million adults when asked were unable to give any accounting on how much they spend on staples such as food, housing and entertainment.

More on Paul Petillo's look at learning from financial disasters can be found here

No one, not even actuaries, knows what retirement will be

Because no one, not even the actuaries know how long we will live, whether we want to perserve some of those funds for our heirs, what the tax rate will be over those years and whether inflation will begin to rise significantly, this decision is incredibly difficult to make, even when you are close to retirement.

Arriving at retirement in good health, relatively debt-free and with some developed plans about where you live and how you intend to live in retirement can offset some of those later-in-retirement expenses that slow the consumption of that income.

Read the full article by Paul Petillo, a fellow Boomer here.