Should Boomers say Bye to retirement?

Should baby boomers say 'bye' to retirement?

By Mitch Strohm | Bankrate.com – Wed, May 23, 2012 6:00 AM EDT

Between inflation and consistently pitiful yields, retirement planning has become a Herculean task. Investment is tough when working with low returns. But there's a bigger problem on the horizon -- a large majority of baby boomers on the cusp of retirement won't have enough assets to last them for the duration.
In order to get a better understanding of retirement planning in a weak economy, we asked John Moore, associate professor of finance and economics at Walsh College, to provide us with some insight. As a frequent radio and television guest, he has served as an expert on Detroit Public Television as well as at the Economic and Business Historical Society annual conference.

Has the current economic situation changed retirement planning for baby boomers?

I believe the answer is yes. Returns from equities over the past dozen years have been disappointing by historical standards. Unfortunately, the near-term future of capital markets remains unclear due to the slow growth of the American economy and uncertainties in Europe.

The consequence is that many boomers are underfunded for their retirement. Many of them will need to work longer in order to accumulate the funds necessary to retire in comfort. An alternative will be to scale back lifestyle choices during the retirement years. The reality is that the average boomer will likely live their retirement years more comfortably than their grandparents, but perhaps not as well as their parents.

For retirees already on a fixed income, what effects has the recession caused?

The problem for fixed-income retirees is that the cost of "ordinary goods," such as groceries, gas and utilities, is currently increasing at a faster rate than the official (Consumer Price Index). This can seriously damage the real purchasing power that retirees have at their disposal. Although we are by no means in the same situation yet, the last time that retiree purchasing power was badly damaged was in the 1970s, when high inflation hurt retirees and the poor harder than any other segment of society.

How can an individual plan for retirement and determine the total amount he or she needs once retired?

Each individual's plan is unique. It depends on when they want to retire, what sort of lifestyle they want to live during retirement, the amount of savings they accumulate, and their investment styles. Everyone serious about retirement should work with some sort of qualified financial adviser to answer those questions.

In light of the currently volatile financial world, individuals should be prepared to save more and assemble a well-diversified portfolio in order to ensure they reach their investment goals. Although this may seem counterintuitive right now, a well-constructed portfolio should include some real assets such as real estate.

What significant impact has the economic meltdown had on investment plans such as a 401(k)?

Most 401(k) and IRA plans have produced lackluster returns over recent years since they usually mirror the market fairly closely. Unfortunately, there is no magic elixir to this situation. It's plausible that the next decade could produce similarly poor results.

Individuals cannot make markets perform; they can only react to them. Investing is more a function of discipline and persistence. Intelligent investors, in conjunction with their advisors, should set a plan, reassess it frequently and make adjustments such as setting more funds aside to invest and/or adjusting their risk/reward investment profile.

What are some of the financial risks for people in retirement?

The great challenge for retirees is that they are in a "wealth preservation" mode. Lagging market performance and rising costs are the enemies of happy retirement. Retirees should be cautious in assessing their lifestyle costs, as the current economic situation may continue for a prolonged time frame.

Is there any advice you would like to give to individuals who are planning for their retirement?

Prudent investing should be the byword. Consider that the present economic malaise is similar in some ways to the Panic of 1873, which was notable not for being the worst recession ever but rather for one whose impact lasted for quite a long time.

Keep in mind that while financial markets can sometimes produce truly impressive returns, such as the recent run-up of the NASDAQ (stock index), it can also bite back. Despite its recent surge, the NASDAQ is only 60 percent of its 2000 value. The Dow Jones (industrial average), after the 1929 crash, took 25 years to return to precrash levels. The Nikkei (index) still has not returned to its pre-1989 crash levels.
I'd be particularly concerned about inflation, which typically poses a serious problem for investors and savers. The Federal Reserve is presently pursuing easy-money policies and, when the economy finally expands, we could very well see inflationary pressures. Most people forget the financial damage caused by 1970s stagflation because the 1980s and 1990s provided the longest economic expansion in American history. We have no guarantee of a repeat episode, if we encounter inflation in the next two to five years.
Investors need to become bigger savers and construct diversified portfolios that, to put it in baseball terminology, are more focused on hitting singles and doubles than home runs.

We would like to thank John Moore, professor in the Finance and Economics department at Walsh College, for his insight. end quote from:

http://finance.yahoo.com/news/baby-boomers-bye-retirement-070449242.html

I was reading this article and thinking about my real life experience here at age 64. First of all, if I look at my 3 best friends from ages 15 to 25, 2 are dead and both died in their early 60s. One died of a heart attack and the other died from premature Alzheimers. So, of my 3 best friends from my teens and twenties, 2 are now dead. However, my last best friend from the old days likely will be financially okay until he is 100 and likely the same is true for me. My last best friend from the old days is a musician and plans to keep touring until he is in his 80s or as long as he can do that. 

When I was in my 30s I expected to work until I died. Many people my age are still in this position or they have already died working. However, if someone is now 30 years of age, generally they can expect to see 90. My father in law passed away at around 90. My mother passed around 90 and my wife's stepfather is around 93 and still flew me around in his Beechcraft V tail private plane in his early 80s, And he is still perfectly healthy and has all his marbles. So, longevity for many people still exists in growing numbers. And I wouldn't be surprised if my remaining friend and I are still skiing one or more times a year into our 70s or beyond during the winters.

Another thing I have noticed is that people who work part time at some kind of job or managing a business seem to live the longest with all their mental faculties in place. The people who die the youngest seem to be smokers or really heavy drinkers or those with poor health and don't exercise at all. For example, my father in law had at least one drink of Scotch Whiskey after 6 pm almost every single day of his life. It was just his tradition and somehow this helped him make it to 90. Each person needs to think about what they need to go on. But one thing I do know, and this is what my father in law told me. He said, "Old age isn't for sissies". In other words living to old age might be the hardest thing you ever do. But then again "What is the alternative?"