Moore for your Money
BYRON MOORE, CFP®
Question: I’m getting closer and closer to retirement and I don’t see how I’m going to pull it off any time soon. My parents were not rich folks, but they retired on time and seemed to be OK. All my friends seem to be in the same boat. What’s changed?
Life was very different for your parents, both during their working years and in retirement. On average, for people in your parents’ generation:
Life spans were shorter. Life expectancy in the US in 1900 was less than 50 years. By 1930 (around the time of your parents’ birth), it was up to about 60 years. Today, if a husband and wife retire at age 65, there is a greater than 50% chance one of them will live beyond age 90.
Lifestyles were lower. The average sized house in 1973 was 1000 square feet smaller than today’s average sized house. And it was filled with more people (remember when a family with four children was fairly common?). Think of all the technology to which most of us have become accustomed (dependent?). And for many of these, we pay either a monthly subscription, or we have to buy a new “updated” device or appliance because the “old” one no longer works (i.e., has become supplanted by something newer and cooler!).
Retirement incomes were lower, but guaranteed. A generation ago, most Americans were either covered by a pension plan that replaced their earned income after they retired, or by Social Security, which served the same purpose. Because life expectancies were shorter and the income needed to fund them was lower, both private pension plans and the Social Security system were able to guarantee the (lower) retirement incomes your parents had.
But retirement for the Baby Boom generation is turning out to be very, very different. Boomers may tend to romanticize the desirability of their parents’ retirement, but few would opt for shorter life spans, lower lifestyles or less income.
Here’s the way I see it for the Baby Boom generation now facing retirement:
Boomers’ opportunities are greater than their parents, but the guarantees are fewer. Boomers have earned more than their parents, but have also seen the risk of retirement transferred onto the worker. The only thing known for sure about today’s defined contribution 401K retirement plans is how much one puts in each year. After that, the outcome is dependent on selection and performance of investments. Boomers have discovered in recent years that isn’t the same as a guarantee.
Boomers are likely to live longer than their parents, but it may cost a lot more. Not only will a longer retirement cost more, but living longer often comes with greater medical costs.
Boomers enjoy greater wealth than their parents did, but they are free to spend it all now. By any realistic measure, boomers have enjoyed more wealth than their parents did. Bigger houses, better cars, greater travel opportunities, vast recreational and entertainment choices and technology that was the stuff of daydreams for their parents.
The good news for the boomer feeling unprepared to face retirement is that there are lots of planning and risk mitigation strategies available to them today. This is a big societal issue and lots of smart people have been thinking about how to address this problem.
My own experience is that many are closer than they had realized. For most of them,
a carefully crafted financial plan was key to putting their unique retirement puzzle together.
One thing is for sure – wistfully gazing into the rear view mirror will provide few hints about how to should proceed.
This is not your parents’ retirement.