What the news ignores about retirement for baby boomers
The carefree daydream of retirement vs. reality
For the past 20 years, retirement savings rates have tanked.
In 2018, the average savings rate was 6.3% of total income — nowhere near the suggested rate of 15% to 20% that we recommend. These startling numbers contradict with the envisioned daydream of a carefree retirement.
Only 26 percent of baby boomers have a backup plan for retirement if forced into retirement sooner than expected. Without a steady stream of income, retiring from work is simply unfeasible for some individuals.
Why the long-term downward trend?
This dramatic change can be blamed on the shift of moving the responsibility of saving for retirement from corporations to employees.
Defined-benefit pension plans were cut and replaced with defined contribution plans. In 1983, there were approximately 175,000 pension plans. By 1999, that number dropped to below 50,000 and has stayed low ever since (Morningstar).
Individuals, rather than corporations, are now shouldering the retirement burden. Since the baby boomer generation was “mid-career” when the retirement landscape moved from defined benefit plans to 401(k)s, they’ve had less time to play catch-up.
The shift in accountability has caused an increase in poorly managed, high-cost retirement plans.
Poor company 401(k) plans mean higher fees, mediocre performance, and a lack of financial planning tools.
The best thing you can do for your future is to engage with your financials now.
This includes real estate, cars, and appliances. Often they either appreciate over time or provide a fair value over their life. Loans that we have against them reduce their value – such as mortgages and auto loans. Subtract those, we get the net value.
Time and compounded interest help to grow your retirement savings. The “empty nest” phase — right after your children are financially independent and have left their childhood home — can be a crucial time to play catch-up.
If you’re unsure on what your financials look like for retirement, now is the best time to build a plan through your own research or with the guidance of a trusted financial professional. The earlier you start, the less painful it will be. Don’t wait until the last minute to think about retirement.
“The earlier you start, the less painful it will be.”
A planned approach to retirement is one of the most important decisions of your life. It brings the ability to live with independence, give generously, and spend time on the things you love.