Unrealistic baby boomers face a retirement crisis - SanTan Sun News SanTan Sun News

Unrealistic baby boomers face a retirement crisis

July 9th, 2019 SanTan Sun News
Unrealistic baby boomers face a retirement crisis

By Harold Wong

Guest Writer

A recent study “Boomer Expectations for Retirement 2019,” released last month by the Insured Retirement Institute study looked at baby boomers, born between 1946-64. Nearly half are already retired.

Expectations. Boomers have unrealistic expectations of their needed retirement income. The average amount spent by Americans 65-74 is $55,000 per year and yet 60-70 percent of boomers say they will need less.

Annual retirement needed. The study showed those who said they needed less than $35,000 accounted for 44 percent of boomers in this study; Those who said they needed $35,000-$55,000 comprised 26 percent; $55,000-$75,000, 16 percent; and those who said they needed more than $75,000 represented 14 percent.

This means 60-70 percent of boomers think can live on less income in retirement and that’s unrealistic.

Boomers do not realize that there are three phases of retirement: the Go-Go Years; the Slow-Go Years; and the No-Go Years.

When one first retires, that’s the time they want to do their Bucket List items such as adventure/foreign travel, hiking the Grand Canyon or pursuing expensive hobbies.

One’s spending can easily exceed the level spent during one’s working years. If one has three kids (and grandkids) living far away, just visiting each twice a year is six trips a year.

Boomers have been told they only need to spend 70 percent of their working year income, but that’s simply not true for most boomers that I’ve met. You now have unlimited time, but do you have enough money?

The three-legged retirement stool. This does not exist for most boomers. The three traditional “legs” of the retirement “stool” consist of Social Security, an employer pension, and personal savings.

In 2017, retired workers received an average $1,404 in monthly Social Security benefits and spouses $732. For a married couple, this is $2,136 per month, or $25,632 per year.

Only 23 percent of boomers age 56-61 expect to receive income from a private company pension. That means that the overwhelming majority of boomers only have two “legs”: Social Security and income from their private savings.

Retirement savings. The savings levels for this study’s group of individuals is much higher than other studies that claim zero retirement savings for 25-45 percent of the population.

The results of the study showed the percentages of those with the following savings: Less than $100,000, 28 percent; $100,000-$250,000, 23 percent; $250,000-$500,000, 15 percent; $500,000 or more 20 percent; and 14 percent didn’t know.

Savings of $500,000 may seem impressive, but it won’t generate much income today. Ever since the 2008 financial meltdown, interest rates have been the lowest in history. You can expect to earn a maximum 2-2.5 percent from a bank or 10-year treasury bond.

The average dividend yield has been only 1.98 percent for the first 19 years of this century. Even if you saved $500,000, it will only yield about $10,000/year. When one adds it to an average $25,632 of SS benefits for a married couple with no pension, their total retirement income is $35,632.

Since the average couple age 65-74 spends $55,000 a year, not many can handle a 35 percent drop in income, or about $20,000/year.

What this means. By the time you’re an older boomer, you’ve either saved a lot or not. Most won’t have an employer pension. This means you should work until at least 70 (which 31 percent plan to).

For a couple waiting until 70 to take their SS benefits (when it will be the maximum), this can be $10,000-20,000 more in Social Security retirement income.

-Harold Wong earned his Ph.D. in economics at the University of California/Berkeley and has appeared on over 400 TV/radio programs. Reach him at Harold_wong@hotmail.com.