If you are a Baby Boomer, you will probably be able to think back a few years and remember Roger Daltry singing about his fervent wish to die before he got old. Ironically, he had no idea back in 1965 when that song was released how much of a problem longevity could be for his generation.
According to Conning Research & Consulting, a provider of insurance research located in Hartford, Connecticut, baby boomers are facing changing times because productivity gains have experienced a slow down and future wage increases will be little more than inflationary increases. Outsourcing has moved a number of jobs overseas. This makes workers less likely to change jobs even though the salary may be higher. Budget deficits have made Social Security and Medicare issues a priority since the baby boomer generation is approaching the age when they expect to receive benefits. Finally, equity market losses since 2000 have decreased many baby boomers’ nest eggs, and the current feeling is that future equity market returns may be lower than those of the late 1990s.
In addition to these factors, baby boomers who retire can expect to have lower guaranteed monthly incomes in spite of their participation in defined contribution pension plans. They are going to have to manage their own assets to be sure they have an adequate retirement income. Retiree medical coverage reductions have made them vulnerable to increased healthcare costs, which places other demands on their retirement savings.
The oldest of the baby boomer generation were eligible for Medicare and full Social Security retirement benefits in 2012. They will begin retirement with less income from defined benefit pension plans than previous retirees, but with bigger defined contribution portfolios. The decrease in their guaranteed monthly income is making this generation sit up and take notice.
What can baby boomers do to protect themselves from outliving their retirement money? Begin changing attitudes now. Assume that you and you alone are responsible for your own financial well being when you are retired. Once you have accepted that fact, then it’s time to take action. This means taking one action that will guarantee future action, like automatic deposits to an individual retirement account. Automating everything about your finances, including payroll deposits to savings plans and accelerated mortgage payments, can make for a less stressful retirement. You don’t have to think about it again and you don’t have to worry about having the discipline that will make you save and advance pay.
Know the risks. Use tools like work sheets and online calculators to estimate the amount of savings necessary to provide a specific amount of income over your assumed life expectancy. Some good examples of retirement planning tools have been developed by the American Savings Education Council. You can find them by logging on to www.asec.org.
Finally, look for financial products that allow you to protect yourself from this risk. An annuity is an insurance product that takes an up-front premium payment and converts it to a monthly income, such as that of a pension, which stretches over a specified length of time. A life annuity offers you the capacity to take action against the risk of outliving your assets by exchanging these assets for a lifelong stream of guaranteed income.
Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.