2008 October 23 Thursday
Older Baby Boomers Financially Unprepared For Old Age

A substantial fraction of the people over age 55 are nowhere near ready to retire.

More than one in five workers at companies that offer 401(k)’s do not even sign up. A study by the Congressional Research Service found that the median amount that workers age 55 to 64 have in their 401(k)’s is just $61,000; another study by the Employee Benefit Research Institute found that 43 percent of workers age 55 and over have less than $50,000 in their 401(k)’s and other savings and investments. Moreover, the institute found that 27 percent of workers in that age group invest more than 90 percent of their 401(k)’s in stocks, a comparatively volatile investment.

Stocks are a good investment right now for the long term (unless Peak Oil trashes the economy in the 2010s).

You are going to have to work longer.

Professor Munnell of Boston College said that staying in the labor force longer is the key to retirement security.

“The reason is you will not get reduced benefits under Social Security,” she said. “Two, you allow your 401(k) assets a chance to bounce back, and you can contribute more. Three, it reduces the period during which you have to support yourself.”

Retirees receive reduced Social Security benefits if they retire at 62, but benefits rise by 8 percent a year for every year a worker delays retirement until age 70. To maintain living standards after they retire, workers need post-retirement income of 70 to 80 percent of their income before retiring, many experts say.

The rise in life expectancies will accelerate once stem cell therapies and gene therapies become commonplace. This will necessitate people working into their 70s and eventually into their 80s and beyond.

A growing percentage of the population continues to work after age 65.

Mr. VanDerhei, of the Employee Benefit Research Institute, said, “For the vast majority of people, if they think they have enough to get out of the work force at age 65, they’re fooling themselves.” More and more workers apparently agree, because the percentage of workers age 65 and over in the labor force has climbed to 17.3 percent in 2008, from 12 percent in 1999.

I expect this trend to continue because the ratio of workers to retirees can't drop too low without crushing taxes.

Rare are the people who recognize that some are winners in the financial crisis. People who still have lots of stock buying ahead of them can now buy stocks for much cheaper.

Kevin Dorwin is a principal financial advisor with Bingham Osborn & Scarborough. He has been on the phone all weekend with clients. He's answering questions and telling them age should determine how they approach their 401K retirement accounts.

He said investors in their 20s are the biggest winners in recent stock market losses.

"They are buying stock at much lower prices than a year ago and right where they were 10 years ago. So, they should be happy," said Dorwin.

The continuing decline in housing prices similarly produces many winners: all those people who haven't bought yet or who intend to buy something much bigger. Low prices are good, not bad.

Share |      By Randall Parker at 2008 October 23 09:29 PM  Economics Demographic

miles said at October 23, 2008 10:24 PM:

Having your house and car paid off (with enough money to pay for a second car if you live longer than you expect), and having medical insurance in place, and having a decent Social Security and Pension check coming, and having all the furniture/TV's/other assorted stuff paid off (this includes that boat, you know who you are) are a lot more important indicators of one retiring happy in my opinon.

One of my best pals, M, does mortgages for a living. He says you'd be astounded at how many retired geezers come to him for loans paid for out of their pensions/retirement funds and even take out home equity loans for moolah. This stuff should have been paid for by the time they were 50.

Ned said at October 24, 2008 5:50 AM:

"He said investors in their 20s are the biggest winners in recent stock market losses.

"They are buying stock at much lower prices than a year ago and right where they were 10 years ago. So, they should be happy," said Dorwin. "

While this is certainly true, these are also the folks who are going to be hit with huge tax increases to support the massive looming deficits in Medicare and Social Security for the Baby Boomers. The numbers are really bad - the shortfalls are measured in multiples of the entire GDP. Yes, the demographics for many other nations, including those of western Europe, Rusiia and especially Japan, are much worse, but that should be cold comfort - most of these nations have much higher rates of saving than the US. Unfortunately, there's no free lunch.

Offshore said at October 24, 2008 7:57 AM:

We should save our money so that it can be taken from us later? No thanks. I'm hiding my money overseas anyway, among other things.

Daniel said at October 24, 2008 10:25 AM:

Off the subject but note this headline from CNN:

Existing home sales jump, prices sink
Sales of homes by homeowners rose in September, but prices declined by 9% from a year earlier.

Gee, I wonder why that would happen, you know, sales increasing as prices drop.

There is nothing to this "crisis" that a little bit of time, honesty and applied common sense wouldn't fix. But never fear, our infallible leaders are tripping over themselves to see who could rush forth the most boneheaded "solution" to bail out homeowners and financial institutions.

Capitalism and democracy cannot work unless the population at large maintain a certain mean level of competency and honesty. Wherever we were in the past, we do not rise to that level now.

Stopped Clock said at October 25, 2008 3:57 AM:

The reluctance of workers of retirement age to retire during an economic recession exacerbates the problem of unemployment for everyone else, especially the young. Lots of college grads are unable to find jobs because nobody's leaving and therefore nobody's hiring.

Big Bill said at October 25, 2008 9:42 AM:

One of the big liberal arguments for mass peasant immigration has been necessity: they will support us in our old age because we Evil Selfish White People had no children.

Mexican peasants were going to rescue us by making squillions of little Mexican infants to keep the economy going.

As I have tried to explain to many people, we cannot quit our jobs at 65 since there is no SS to take care of us. Thus there IS no need for immigrants. Worse, these low-IQ peasants cannot even support themselves, let alone pay additional taxes to take care of us.

I ask these liberal immigrationists, "if you did not have children because YOU couldn't make enough to feed, clothe, house, medicate and educate them, how is it that low IQ peasants will magically be able to do all that for THEIR children AND have money left over to take care of you? You are either going to work your b*tt off sending THEIR kids to college (and pray they will be willing to take care of you when you retire) OR or you can work your b*tt off sending your own kids to college. Which do you prefer?"

JSBolton said at October 25, 2008 10:36 AM:

This is another reason why the use of financial panic-mongering by the left should cause them to lose massively. The left-favoring media have hyped this so much that a reaction tends to build and build.

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