Boomers: This is Not Your Parents' Retirement
Hey boomer…your parents weren’t rich. But somehow, they managed to retire.
Life was very different for your parents, both during their working years and in retirement. On average, for people of your parents’ generation:
- Life spans were shorter. Life expectancy in the United States in 1900 was less than 50 years. By the time of the Great Depression (about the time your parents were probably being born), it was up to about 60 years. Today, if a husband and wife both retire at 65, there is greater than a 50-50 chance that one of them will live beyond age 90.
- Lifestyles were lower. The average sized house in 1973 was 1,000 square feet smaller than today’s average size house. Think of all the technology to which most of us become accustomed to (or maybe should I say dependent?). For many of these, we pay a monthly subscription, or we buy a new “updated” device or appliance because the “old” one no longer works (or has become supplanted by something newer and way cooler!).
- Retirement incomes were lower but they were 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 was able to guarantee the (lower) retirement incomes needed for your parents’ lifestyle.
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 their shorter lifespans, lower lifestyles, and less income.
Here’s the way I see it for the Baby Boom generation now facing retirement:
- Boomer opportunities are greater than their parents, but the guarantees are gone. Boomers have earned more than their parents but have also seen the risk of retirement transferred to them the worker. The only thing known for sure about today’s defined contribution 401(k) retirement plans is how much you or your employer put in each year. After that, the outcome is dependent on the selection and performance of those investments. Boomers have discovered in recent years that that isn’t the same thing as a guarantee.
- Boomers are likely going to live longer. Longer than their parents and longer than previous generations. And 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 not free to spend it all now. By any realistic measure, boomers have enjoyed more wealth than their parents did. Bigger houses, bigger cars, bigger 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 actually closer than they had realized. For most of them, a carefully crafted financial plan is the key to putting their unique retirement puzzle together.
One thing is for sure though, wistfully gazing into the rearview mirror will provide few hints about how one should proceed into the future.
This is not your parents’ retirement.
Offering you Wisdom on Wealth, I’m Byron Moore.
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