The Retirement Crisis is Real (What Baby Boomers Can Do About It)Submitted by Private Client Advisory, Inc. on November 1st, 2016
- The crisis that so many experts predicted is now a reality for many
- Statistics tend to paint a dire picture
- Social Security retirement benefits aren’t keeping up
- Women are generally most at risk
- There is hope
- Actions steps and advice
Take a peek inside the mind of a not-so-out-of-the-ordinary 50- and 60-something...
So many expenses got in the way over the years. Where in the world did the time go?
Kids. Cars. Houses. Healthcare. A never-ending list of non-stop bills.
Save for retirement? Sure, a little bit here and there.
There was that time it had to be cashed out to pay for a wedding, though. That was a setback…
It’s time to quit the 40-hour-a-week grind.
Social Security will cover some of it. But not enough.
How did this happen!? You work hard your whole life; you should have something to show for it, right?
There has to be a way to make this work!
I have a feeling these are the secret thoughts that go through the minds of millions of Baby Boomers.
The ticking time bomb is starting to explode.
A study published by the Institute for Retirement Insurance in April 2016 reported only 24 percent of Baby Boomers are confident they will have enough savings to last throughout their retirement years.1
According to the National Institute on Retirement Security, they’re right to worry because, as their survey revealed, “62 percent of working households age 55-64 have retirement savings less than one times their annual income.”2
Boomers are in over their heads.
The Consumer Financial Protection Board reports that 30 percent of homeowners age 65 and older are carrying a mortgage, with an average amount owed of $79,000.3
Yes, there are a few unique scenarios in which it may be wise for a retiree to carry a mortgage, but for most, it doesn’t make sense to add that drag to a budget that will soon have to stretch even further to make room for rising health care costs.
Sadly, 35 million Boomers do not have ANY retirement savings.4
It’s no wonder considering how in debt they are.
Look, this is a dire situation (especially for women, but we’ll get to that in a minute). The crisis is real, and it’s playing out in front of our eyes, in real-time.
Think Social Security is the answer?
Well, for the seventh time in eight years, the Cost-of-Living Adjustment (COLA) increased recipients’ retirement benefit checks by less than one percent. For 2017, the COLA is a meager 0.3 percent.5
Do groceries and doctor bills seem like they are only 0.3% more expensive than they were a year ago?
Women are more vulnerable.
The following data from NIRS is troubling: “Women are 80 percent more likely than men to be impoverished at age 65 and older.” They went on to say, “[W]omen between the ages of 75 to 79 are three times more likely than men to be living in poverty.”6
America’s nurturers, caregivers, mothers… the ones who should be showered with appreciation for a lifetime of service will feel the brunt of the blast unless something is done.
What can Baby Boomers do about the retirement crisis?
Here are six action steps Boomers should consider that may help alleviate the retirement crisis that was formerly on our doorstep, now in the kitchen.
You have raised a beautiful family and impacted many lives for good, so when the nightly news starts down the “doom and gloom” road, try to tune it out and remember all you have accomplished. And don’t focus on the U.S. economy. The economy that matters most is your personal economy—that’s the one you have some control over. One day at a time.
You likely have multiple sources of income such as taxable investments, social security, 401(k) or IRA, perhaps a Roth IRA or a pension. Income taxes don’t show signs of going down, so it would be wise to use what Roger calls the Faucet Method.
Briefly, the thinking behind the Faucet Method is to pay close attention to how much of your income comes from sources that are fully taxed, such as from IRA and 401(k). Then combine it with partially taxed money like in the case of social security (if you go above the threshold), or a taxable account that has capital gains, which are taxed at a lower level. Finally, mix in accounts like Roth IRAs that are tax-free. Combine those different types of income until the water feels just right—not too hot, not too cold.
Additionally, many of our clients are generous givers who happen to be over age 70 1/2 when IRA Required Minimum Distributions begin kicking in. Instead of giving entirely out of after-tax money, there is a provision in the code that allows for rolling over up to $100,000 per year from an IRA to charity. You may be able to satisfy your RMD without paying taxes on it that way. Here is additional information on the Charitable IRA provision.
When you annuitize, you convert a lump sum amount of money into a steady stream of payments for a pre-determined period—often ten years, 20 years or for the rest of your life. You might think of it like having something like a private pension plan. The Securities & Exchange Commission has a quality web page with more info on annuities. Be sure to check with your State for information about how they step in in the rare case of an annuity company going out of business.
4.) Long-term health care
Traditional Long-term care (LTC) policies have been getting so expensive in recent years that they are no longer an affordable option for many retirees. But what if you could convert an old whole life or universal life policy’s cash value into a policy that includes LTC benefits? They exist, and they are getting more popular because the need is so great.
In-home care, assisted living and nursing home facilities are far from cheap. So, if you no longer have an imminent need for a life insurance policy that has cash value, it may be wise to consider redeploying that cash into a policy that could help keep your nest egg intact.
5.) Reverse Mortgages
In instances where there is no other money saved for retirement, a reverse mortgage can be a lifeline. We don’t have space to get into the nitty gritty details of reverse mortgages here, but if you click over to ConsumeFinance.Gov, they have a good explanation.
6.) Financial plan
A complete financial plan cannot guarantee you will have more money to spend in retirement.
But if you hire us to build your plan, you can:
A) Know where you stand. Getting where you want to go starts with knowing where you are, so no more guessing at your net worth.
B) Receive experienced, professional advice so you know, step-by-step, how to manage your social security, savings and all other assets for the benefit of moving you in the direction of the retirement you deserve.
(Frankly, the social security optimization strategy piece alone can be enough to more than pay for the plan.)
For further reading, feel free to download the Guide to Retirement Planning from our Home page.
One last thing: If you received any value out of reading this article, would you consider sharing it on Facebook or Twitter? Thank you!
Sources (accessed 10/28/16):
5Social Security Administration