IF YOU’RE A BABY BOOMER entering the tunnel of possible retirement, there’s one hard truth to acknowledge: Bad stuff happens.
No matter how prepared you think you might be — and experts say boomers are, generally speaking, quite unprepared — unforeseen events can derail finances. Take just a few that hit me starting in my 50s: divorce, serious health issues, and family crises. And that’s just the big stuff. Even if you downsize, the car will still need new tires. The old dog will tear his ACL. And the condo association will raise its fees.
You’d think boomers would be OK. We hold 60 percent of the wealth in the United States, according to a report by the management firm McKinsey and Co. But we have also accumulated unprecedented levels of debt and will actually need the Social Security we are accused of squandering.
Many of us believe the solution to retirement insecurity is to work into our 70s and beyond. But even if you are healthy or have the income to delay collecting Social Security until its highest payout at age 70, you may not be able to afford the life you imagine. Boomers inevitably respond in surveys that they want to travel in retirement, yet at least 40 percent of us have no retirement savings at all. And most have amassed far less than the 8 to 11 times annual earnings recommended by financial managers as a benchmark for retirement readiness.
In a dose of good news, the number of boomers with retirement savings rose this year to 58 percent, according to the Insured Retirement Institute, a financial services trade association. But there’s bad news, too: We aren’t saving nearly enough. The median savings among those with retirement accounts is about $147,000, according to a survey by Transamerica Center for Retirement Studies. That would generate only about $500 a month spread over 25 years, depending on inflation, says David McPherson, a certified financial planner with Four Ponds Financial Planning LLC in Falmouth and Boston. That’s an annual amount equal to about a month of long-term care.
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THE CONCEPT OF A RETIREMENT AGE stems from financial safety nets that no longer exist for most people. “Defined benefits,” or pensions, were once-ubiquitous sums of money that companies paid to workers starting around age 60 who had stayed with them. With the switch in the last 35 years from defined benefits to “defined contributions” — funds like 401(k)s and 403(b)s — there are no age limitations on contributions, and investments are portable.
“The retirement decision is a difficult one for people to make,” says Matthew Rutledge, a research economist with the Center for Retirement Research at Boston College. “At least in the defined benefit world, you had your company saying, ‘OK, this is the normal age to retire.’ They even called it the ‘normal retirement age,’ and so people latched onto that as at least an implicit, if not explicit, endorsement of retiring at that age.”
Despite the advantages of 401 (k)s, most of us are lousy at saving, either due to circumstance or desire. And even if our employer continued through the Great Recession to make contributions, payouts tend to be less generous than pensions, Rutledge says. Plus, unlike pensions, the funds are not paid out monthly for as long as we live. Once the money’s gone, it’s gone.
Boomers also face a host of other retirement complications. Fifty-five percent of us have credit card debt, 49 percent have mortgages, and about 8 percent are carrying school loans, Transamerica says. In fact, the number of people over age 60 who have taken out school loans grew four-fold from 2005 to 2015, and they are more likely to default than borrowers younger than 40, according to the Federal Reserve Bank of New York Consumer Credit Panel/Equifax.
The divorce rate among those aged 50-plus jumped 109 percent from 1990 to 2015, and tripled among those 65 and older, according to the Pew Research Center. This has particular consequences for women, who are likely to have less in retirement savings but spend a higher percentage of their lives single, says a report from the retirement center at Boston College. Women born in the Depression married younger, got divorced less, and were likely to spend about three-quarters of their lives as part of a couple. Those born from 1954 to 1959 are likely to spend just more than half of their lives married.
To further complicate matters, many boomers are part of the “sandwich generation,” a phrase for those caught between aging parents and children in college or living at home. The number of 90-year-olds in 2020 will be more than triple what it was in 1980. And, in 2016, more young adults ages 18 to 34 lived with parents than with spouses, according to the census. Meanwhile, some 2.7 million grandparents were raising grandchildren in 2012. Even if family caretaking isn’t a drain on money, it often interferes with work and results in lost income, McPherson says.
Then there’s the cost of basic health care. The base rate for Medicare is currently $134 a month. The amount you’ll pay, however, is based on your income, and currently could go as high as $428.60, says Tracey Benson, the Barnstable County program director for SHINE (Serving Health Information Needs of Everyone), a free, state-sponsored benefits counseling service. And Medicare coverage can be less comprehensive than an employer-based health plan. To cover those gaps, add in a prescription drug plan for $12 to $100 a month and a supplemental coverage plan, and you’ll be paying an average of $350 a month for medical coverage if you don’t qualify for further assistance. And that doesn’t include copays, out-of-pocket costs, dental, or long-term care. The Kaiser Family Foundation estimated in 2013 that health costs ate up as much as 41 percent of beneficiaries’ Social Security checks.
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EXPERTS SAY IF YOU want to have the retirement you imagine, start by realistically imagining your life five to 15 years from now. What are your priorities? What health issues will you likely face? Will you be able to work?
Ask yourself if you’re ready to cut some expenses and make tough decisions, like saying “no” to kids seeking financial help. It’s never too late to make adjustments, financial experts say. So consider this advice going forward:
1. Make a budget.
Do you know what you’re spending now? Many of us don’t, financial advisers say. (Boomers averaged $3,100 on eating out in 2016, according to the Bureau of Labor Statistics.) “I encourage everyone, no matter what age you are, to put your current budget in front of you and then, to the right of it, put a blank sheet of paper and play the game of, ‘If I retire tomorrow, would I have this expense?’” says Diane Halverson, director of education and retirement services at Marsh & McLennan Agency in Boston. And don’t forget to budget for the taxes you’ll have to pay on retirement income.
2. Trim your debt.
Try to clear loans such as credit cards and cars, and get your mortgage down, McPherson says. For some, this means a major lifestyle change. Janet Lombardi was in her 50s when she discovered her husband had not only ruined them financially but had been stealing from his law firm to pay for it. He went to jail. She went to Debtors Anonymous, moved in with her sister, and then wrote a tell-all how-to book about her recovery, Bankruptcy: A Love Story. Ten years later, she’s out of debt, remarried, and living in Rockville Centre, New York. She still tracks every penny she spends and uses her debit card instead of a credit card. “You don’t crawl from the wreckage without pain,” she says.
3. For most, collect Social Security as late as possible.
“Roughly speaking, for each year you wait, you get an extra 7 or 8 percent,” McPherson says. Some people, however, may do better taking Social Security earlier, says Christina Kemprecos, a certified trust and financial adviser in Chatham. If you are still working at 62 and have a lot of debt, it might be wise to take reduced Social Security payments to pay it off, she says.
4. Keep working.
You don’t have to keep up full-time work or be entrepreneur of the year. The goal is to take as little from retirement savings as possible. Even a part-time job for $15,000 a year means $45,000 less money taken out of your retirement fund over a three-year period. And, older workers actually contribute to a healthy economy because they have more to spend — and do, Rutledge says.
5. “Put yourself first.”
If you do give children money or a place to live, have an agreement and an exit strategy. “I don’t care who you are or how much you’ve saved for retirement, you need to put yourself first,” Kemprecos says. “That goes right to probably the number one problem I have with my female clients, is they give too much money away to their kids.” Some people have not saved anything for themselves because they cannot say no to their children, Halverson says. If you are facing divorce, negotiating for retirement funds is more important than keeping the house, McPherson says.
6. Manage up.
If you have elderly parents, ask for written permission to speak to their financial adviser, if they have one, McPherson says, and suggest they have health care proxies, wills, and power of attorney in place for emergencies. Help them to get educated about financial scams. And don’t treat inheritance as a retirement income stream but as an unexpected bonus.
7. Have an emergency fund.
This may seem overwhelming when you’re trying to pay the mortgage, but it’s an important strategy to avoid racking up credit cards when the water heater blows. The usual recommendation is three to six months or more of income. But Halverson suggests starting small with, say, $1,000, which would cover new tires, for example. And consider using a Roth IRA account instead of a more accessible savings account, she says. You’ll be less like to drain it if you have to pay the fee for withdrawals.
8. Learn about Medicare.
Get advice about three months before signing up for Medicare and then check each year to make sure that your prescription plan and your supplemental plan, if you have one, are best suited to what you need, Benson says. Ask your doctor about switching from more expensive brand-name drugs to generics. And take care of yourself. Forty-one percent of women ages 65 to 74 are obese and more than 60 percent of men and women in that age group have hypertension. Small issues now may lead to expensive health problems later.
9. Take charge and get help.
No hiding your head in the sand. Take action if you’re in financial trouble. Lombardi bought a few hours of a financial adviser’s time at a church auction and then discovered Debtors Anonymous, where she got advice and support for free. “You can’t leave it up to someone else,” she says. “You can’t leave it up to your spouse, you can’t leave it up to your parents, you can’t leave it up to a financial adviser, you can’t leave it up to your employer. You can’t make an assumption that somebody is looking out for your finances. You need to do it.”Globe correspondent Nicole DeFeudis contributed to this report. Susan Moeller is a writer, editor, and baby boomer who lives on Cape Cod. Send comments to firstname.lastname@example.org. Get the best of the magazine’s award-winning stories and features right in your e-mail inbox every Sunday. Sign up here.