Silver tsunami heads to retirement shore unprepared

Bakersfield Life Magazine
February, 2011

They have been called the “pig in the python.” They are the baby boomers who comprise a huge bunch of people born after World War II, from 1946 to 1964. They swelled the historically “flat” demographic line as they grew out of diapers, overwhelmed American schools, consumed the job market and drove the world’s economic engine.

As the first of these boomers in 2011 hit the “traditional” 65-year-old retirement age, this generation now is being fearfully labeled the “Silver Tsunami.” Estimated to number 79 million, boomers are expected to live longer and require more public services. Their need for healthcare services will skyrocket, with baby boomers swamping the already struggling Medicare system. Most boomers will be financially unprepared for retirement.

The AARP Public Policy Institute predicts only 25 percent of boomers will be financially comfortable in retirement. Another 25 percent will live their remaining years in poverty. Conditions for the rest will be somewhere in between.

According to the Pew Research Center, for the next 19 years, about 10,000 people will turn 65 years old – crossing into the “magic” retirement age – every day.

Olivia Mitchell, executive director of the Pension Research Council and director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania’s Wharton School, has been one of many industry experts sounding the alarm.

“The situation is extremely serious because baby boomers have not saved very effectively for retirement and are still retiring too early,” Mitchell lectures.

Likely this is not “breaking news” to those reading this article. If you are a Bakersfield boomer, the description might fit you. Certainly you have friends and associates who you fear will be crashing onto the retirement shores unprepared and maybe even destitute.

It’s not simply a matter of these people being undisciplined, self-indulgent boomers, who “failed” to save for their retirements.

The reality is that boomers have been slammed by the recession. They have seen their stock market-dependent 401K tax-deferred savings plans turn into 201K plans. The homes they relied on to be their “retirement nest eggs” are in many cases worth less than the amount they owe on them.

Many boomers have lost their jobs and simply can’t find new ones. They have been forced into early retirements and living on reduced Social Security checks. The days of their parents’ “defined benefit” pension plans are long gone in the private sector.

According to a study by the Center for Retirement Research at Boston College, 51 percent of early boomer households (ages 55 to 64) face a retirement with lower living standards. AARP analysts have concluded that too many boomers have ignored or underestimated their worsening financial outlook.

It’s a little late to say “tsk tsk, you should have prepared better.” It also ignores the fact that many of today’s boomers are financially hurting through little or no fault of their own.

And besides, when the full force of this Silver Tsunami is realized, it won’t be an individual problem. It will be all of our problem. How is America going to cope with and care for all of these boomers as they age?

But it’s not too late for boomers to make course corrections that will improve the financial situation for some of the youngest (47 years old) and some of the oldest (turning 65).

Here are some steps you can take right away:

  1. Take advantage of the “Payroll Tax Holiday,” which was implemented as part of the two-year extension of the Bush-era tax cuts. The “holiday” reduces your withholding for Social Security from 6.2 percent to 4.2 percent for 2011. Since this amount will be taxed as income, increase your 401(k) deduction by 2 percent for 2011. According to the “Smart on Money” website, this could be $1,000 a year savings that can go right into your retirement account.
  2. Shop your home and auto insurance. Many are unaware that their home and auto are provided by different insurers. By combining coverage under one provider, a solid discount often can be realized.
  3. Create a budget. Most people are unaware of how much money they spend each month and what they spend it on. A simple budget can help you track expenses to see what areas you may be able to trim.
  4. Strategically pay off credit cards. Many people pay extra on their cards each month, focusing first on the higher interest rate cards. This is smart. What also works well is to pay off the lowest balance card first, rolling that payment into the remaining cards. This can save thousands in interest payments depending on how much you have to pay off.
  5. Use the money you receive from your tax return to pay off debt, create an emergency fund, increase 401(k) contributions, or start a Roth IRA.
  6. Consider dropping “extra” insurance policies funded through payroll deductions. These often include accidental death and dismemberment insurance policies, which are rarely used. The odds of a worker dying in an accident are 1-36. Cancer policies are also popular. While one in seven people die from cancer, most do not die from it while on the job. A better use of the money would be to buy a policy that covers any death, or simply save your money by not purchasing the policies.
  7. Eating out every day for lunch is fun and great for the local economy, but the cost can add up quickly. At $10 to $15 for lunch, with tip, a person can easily spend $200 a month or more eating out. By bringing leftovers twice week you could save $80 a month. Cut dining out costs by clipping coupons and taking advantage of restaurants’ promotional discounts.