Boomers face up to financial fears in retirement

The Bakersfield Californian
July 23, 2010

As boomers age, they face one of the greatest challenges in their lives: how to avoid running out of money in retirement. Many boomers are financially unprepared for retirement and may go broke.

A recent study released by the Employee Research Benefit Institute found that nearly one-half (47.2 percent) of the oldest boomers (those born between 1948 and 1954) do not have sufficient retirement resources to cover basic retirement expenses and uninsured health costs. The percentage drops for late boomers, who are now ages 46 to 55, to 43.7 percent, showing that they too face nearly the same likelihood of not having enough money saved.

However, it is not too late. Boomers can take steps to avoid running out of money in retirement.

One of the smartest moves a boomer can make is paying off as much consumer debt as possible before retiring. Five to 10 years before retiring, a couple should sit down and create a road map to how they are going to pay down their debt.Too many people reach retirement with a mortgage, car payments, and credit card balances, and no clue about how to pay them off. Those extra payments put a burden on a retiree’s montly cash flow, forcing some to take investment risks to maintain their lifestyle.

The other benefit to paying down consumer debt is that you get used to living on less money. Since most retirees have less income, getting used to that before retirement can emotionally make a big difference. Committing to $500 to $1000 per month toward paying off debt can make the transition into retirement smoother.

While most people do not want to consider working a couple of extra years, it may be beneficial for your long-term retirement. Working two to three more years at peak earnings can increase pension and Social Security payouts significantly. Additional contributions to a 401(k) and other qualified plans in the last couple of years may help make up for past market losses. Often a couple of extra years on the job can be the difference between going broke and having a successful retirement.

Since the stock market downturn in October 2007, many 401(k) plans are still down 25 percent from the peak, leaving boomers with less money to draw from. A good strategy to help weather future storms is to take 10 years of retirement income and invest it in low-risk choices. This is especially important because more than 90 percent of the typical boomer’s 401(k) is invested in equities. Protecting money creates peace of mind, plus it allows for an additional 10 years of investing in case the enconomy take another turn for the worse.

Boomers are encouraged to seek help when it comes to investing their money in 401(k) or other qualified plans. In the 1990s and 2000s, it was very easy to make money in the stock market. But with the current domestic and global economic isues facing investors today, making money – and more importantly, protecting money – is increasingly difficult.

A qualified fee-based financial advisor can help manage accounts and advise on the best ways to invest in this economic climate. Experienced financial planners can help investors identify opportunities and provide realistic assessments of income and asset needs in retirement.

Creating a financial plan will be the focus of “Planning for Your Retirement,” a class offered through the Levan Institute for Lifelong Learning and Bakersfield College in October. Go to www.bakersfieldcollege.edu/levaninstitute to register online.