Hey, Baby Boomers! Your generation has seen the beginning and end of the Vietnam War, women becoming “liberated,” and the assassination of a President. You were asked to “tune in and tune out” and “do your own thing.” You’ve dealt with a lot of change. It’s no wonder your generation is being described as resilient, independent, health conscious, resourceful, competitive, disciplined and educated. It’s predicted that one out of every four 65-year-olds today will live past age 90 [i].
When it comes to saving for retirement, you’re a mixed group. A 2015 BlackRock survey found Baby Boomers have an average nest egg of $136,200, but say they want/need an annual retirement income of $45,000. This means Baby Boomers could face a significant income gap in retirement [ii]. Even more frightening is that 41% of baby boomers have no retirement savings at all.[i]
Experts agree, the way Boomers will live out their retirement years will look very different from the historical, stereotypical image of “senior citizens.” So, rather than retiring into the background of our society, more will remain vibrant and active throughout their retirement years than was the case of previous generations [iii].
Here are three fab retirement tips to help you prepare for your second fifty years:
1. Transition your investment portfolio – Many boomers are either already in retirement or less than 10 years away.
a. For those in retirement, you may want to focus your portfolio on providing income. A combination of investments that may help include government and corporate bonds, REITs, dependable company stocks that could pay consistent dividends and possibly an annuity for those that like a guaranteed income stream.
b. For those still working it might be a good time to prioritize protection of your nest egg by reducing exposure to higher risk investments.
c. Remember to take advantage of the catch-up contributions! For more on catch-up contributions, read last month’s Hey, Gen Xers! Flick your Bic if you’re not saving enough for retirement blog.
2. Create a written retirement plan – Documenting a retirement plan will raise your chances of living the lifestyle you want and can afford. Put thought into estimating your monthly expenses that will remain in retirement and don’t forget about increasing health care costs as you age. Do you want to take trips or golf every day? How will you pay for these monthly expenses?
a. Determine how much you expect to take out of your retirement accounts. Many experts say around 4% of the retirement can be withdrawn annually to ensure funds last a life-time. Using the average nest egg from above of 136,200, this means only $5,448 can be withdrawn each year.
b. What about Social Security? When FDR created Social Security the expectation was to supplement retirement savings, but many these days rely on this benefit as the primary (or only) source of income. Full retirement age for Social Security benefits is currently age 66 for most baby boomers. Did you know that every year you delay Social Security payments your monthly benefit increases about 8% [iv]? For those short on retirement savings this strategy paired with the next tip may be a good alternative.
c. Should you continue to work? According to a 2012 survey by the Bureau of Labor Statistics about 18.5% of Americans age 65 and over were working [iv]. Some work because they enjoy their jobs while others have to work to pay the bills.
d. Hey, you’re not getting any younger. As you age, you may not be as sharp as you once used to be. Now is a good time to document a “roadmap” that discusses how you want your assets to be invested as you age. This roadmap provides you and/or others (children and powers of attorney) something to refer to later in life.
3. Payoff mortgage and right-size your home. Prior to retirement it is a great idea to reduce fixed expenses as much as possible. Typically the largest monthly fixed expense is your mortgage. Many boomers also live in the same home from when they were raising their children. Do you really need a three or four bedroom home? You may be able to downsize to a smaller home that is easier to maintain as you get older. If the smaller home costs less than the proceeds for the larger house you sold, your nest egg will receive a nice boost!
There are 401(k) plans out there like PAi’s CoPilot that make it easier for you to understand and work toward your retirement goals. With CoPilot, you’ll be matched with investments that fit your needs. Your investments will be monitored for performance and you'll receive real-time messaging whenever an event occurs that will impact the health of your retirement. And you'll always have a clear picture of how much retirement you're actually buying, because CoPilot translates your savings into what matters most - how many years you can afford to be retired.
Let’s start with a conversation, then let us do the rest of the work for you. Contact us online or give us a call to get your 401(k) plan started: 800.236.7400.
Ryne Lambert, MBA - Financial Services Representative Team Lead - firstname.lastname@example.org - 800-236-7400 x3491
Ryne is a subject matter expert on 401(k), retirement savings, investments, participant advice, personal finance education and behavioral finance.