Sunday, February 20, 2011

Memo to boomers: Build a retirement strategy. It's now or never!

Can baby-boomers retire? According to a report today on the Wall Street Journal Web site, the answer is no. We haven't saved enough, we haven't spent enough time looking into how to make the transition to retirement and we got burned big-time by the Great Recession and accompanying downturn in the worth of our investments. Then many of us 60 and single jumped out of stocks just before the market recovery of the past 18 months, totally missing the opportunity to recoup losses.
Here are a few startling facts from the report about households headed by people aged 60 to 62, nearing retirement, with a 401(k)-type account at their jobs.
- Such households had a median income of $87,700 in 2009, according to data from the Center for Retirement Research at Boston College. The data was updated at The Journal's request.
- If couples -- as suggested, will need 85 percent of their pre-retirement income in retirement -- that number would be $74,545 a year.
- Experts estimate Social Security will provide as much as 40 percent of retirement income, or $35,080 a year for that median family. That leaves $39,465 needed from other sources. Most 401(k) accounts don't come close to making up that gap, said the Journal.
- The median 401(k) plan in the U.S. held $149,400, including plans from previous jobs, according to the Center for Retirement Research. To figure the annual income from that, analysts typically look at what the family would get from a fixed annuity.
- The $149,400 401(k) investment in an annuity would generate just $9,073 a year for a couple, according to New York Life Insurance Co., the leading provider of such annuities— less than one-quarter of the $39,465 needed.
- Just 8 percent of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.
Journal reporter E.S. Browning provided a small bit of comfort by pointing out that some families have other income. Some expect separate pension payouts to add another $26,500 a year. That amount, plus the $9,073 from a fixed annuity, plus Social Security still falls short of the $74,545 needed in retirement.
Numbers in the report don't include people who have left their jobs early because of downsizing, who lost jobs and have stopped contributing to their retirement plans. The money needed in retirement per year, also does not factor in inflation, which until lately average about 3 percent a year. Have you checked the price of wheat, lately?
So that leaves those contemplating retirement looking at additional adjustments to make it happen. Those adjustments may include reducing living costs or continuing to work at least part-time. Neither of these options should be that scary or that awful. Many of us don't want to retire to a golf course. The big factor is how much debt are we carrying into our retirement years? More baby-boomers face continued mortgage debt than previous generations. My mother paid off the farm loan in 1958.
Those with years of full-time work still ahead must crank up the debt reduction plan and come to terms with household expenses in retirement.
All this can be done. My prediction is that a new industry will spring up to assist baby-boomers in finding rewarding, part-time work as they transition to full-retirement, cut expenses, get out of debt and learn to love a household budget. For more:
What you need to retire at CNNMoney, click here.
Calculating annuities, click here.
Other options for investing your 401(k), click here.
Finding part-time work in retirement, click here.
How to combine work and retirement. See sixtyandsingle.com.
Living on a budget, cutting household expenses at mint.com, click here.

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