Not too late for boomers to start saving

The Bakersfield Californian
December 24, 2010

The man sitting at my desk was 54 years old and worked as a middle manager for a local company that has experienced several layoffs over the past two years. His wife is seven years younger and works as a teacher. They have two children, one in seventh grade and the other a junior in high school.

The couple’s retirement plan basically boils down to this: Live on his Social Security and her teacher’s pension checks when they retire. They would like to retire in their early 60s. But at the rate they are saving and planning, they will likely have to work, at least part time, into their 70s.

Each has only a few thousand dollars stashed away in tax-deferred retirement programs, such as his company’s 401(k) plan. They have a checking account and only a few hundred dollars deposited in their credit union.

They bought their northwest Bakersfield home before the real estate boom, but added to the mortgage with an equity loan to make improvements. Like many people, the amount they owe exceeds the home’s current value.

They bought their northwest Bakersfield home before the real estate boom, but added to the mortgage with an equity loan to make improvements. Like many people, the amount they owe exceeds the home’s current value.

Their credit cards carry large balances. And rather than saving their money, their spending priorities have included paying for enrichment classes for their children, shopping for clothes and shoes and luxury vacations. In fact, their monthly income barely covers their bills.

With their children’s college years approaching and gray strands popping out in their hair, Mr. and Mrs. Boomer (name changed to protect confidentiality) recognize their financial future is in jeopardy.

They sought my financial counseling, asking only one question: Is it too late for us?

I was tempted to say yes and push the desperate couple out my office door. The financial hole they are in is real deep and it will take a lot of work and discipline to crawl out.

But the Boomers are not alone among my clients. Several couples and individuals I advise are approaching retirement age with the same skimpy assets and mountains of debt.

This month, Ameriprise Financial and Harris Interactive reported the result of a survey of more than 10,000 adults, ages 40 to 75, in 30 metropolitan areas. Workers on the verge of retirement in Minneapolis and St. Paul were found to be the most prepared, while those residing in Los Angeles were the least. The survey measured consumers’ likelihood to have determined the amount of money they need to save for retirement and their actual saving habits. It also took into account respondents’ planning for a variety of retirement activities and their confidence about achieving retirement goals.

“In some cases, local economic conditions have had such a substantial impact on people that their levels of preparation and confidence appear a bit out of sync,” said Craig Brimhall, Ameriprise Financial’s vice president of retirement wealth strategies, in a press release about survey results. That particularly applied to Los Angeles, where more than a third of the respondents had experienced a career setback, or layoff in the past 18 months.

While Mr. and Mrs. Boomer in Bakersfield may be in “good company,” that does not make their lack of planning and retirement saving more acceptable. I told them their days of denial are over. They must tighten their belts and begin saving.

My advice to the Boomers specified mechanisms for saving and debt reduction. But as we wind up 2010 and begin 2011, everyone should follow the general steps I laid out for the Boomers to build their retirement nest eggs.

  • You go to your dentist at least once a year for a checkup. Do the same with your investments. Whether you manage your own accounts, or rely on a financial advisor or accountant, review your investments. Are they balanced for risk and return?
  • This year has seen a tremendous stock market run up. Will it continue through 2011? Regularly evaluate your stock or mutual fund portfolio. Don’t just dump your money into funds and hope for the best.
  • Do you have money set aside in “liquid accounts?” That means, can you get your hands on money quickly if critical needs arise?
  • Review your insurance coverage. Are you making payments on an old policy that no longer meets your needs?
  • Do you have a will? Is it current?
  • Adjust your tax withholding. It may be nice to get a big refund back from the government, but excess money withheld is more valuable invested. Review your entire tax situation with your accountant.
  • Pay down your debt. Reduce use of credit cards.
  • Calculate your net assets and income. Estimate how much it will cost to retire.
  • Create a budget to control spending. Make retirement saving a budget priority.

I didn’t sugarcoat my assessment of Mr. and Mrs. Boomer’s financial circumstances. They messed up. They should have started saving and planning years ago. But it’s never too late to start. The sooner they get their retirement strategy in place, the better off they will be when they are in their 60s and 70s.