I am a baby boomer. Born in 1959, I am part of the very large generation of people born between 1946 and 1964 that has either retired in the last decade or will retire during the next 15 years or so. While I am excited about the prospect of retiring in the next decade, I am part of a generation that faces unprecedented challenges in retirement.
We live longer.
Baby boomers now live three or four years longer than people did a generation ago. For many people, this means a longer retirement. However, those wanting to retire as soon as possible may not realize they may have less income in retirement because they have fewer years of contributions to their retirement plan, less time in a pension plan (where employers often base the pension amount on the number of years you have worked there and the salary you made close to the end of your career), and a smaller Social Security benefit.
It also means baby boomers may need to withdraw from their retirement plan sooner even though they may need it to last for more years in retirement. They may also face increased health care expenses since they will not qualify for Medicare until age 65. However, if they work longer, they can stretch retirement savings and delay claiming Social Security benefits, which increases the retirement benefit up until age 70.
Many in this generation participate in more activities than their parents, which means more money being spent on hobbies and traveling. Deciding when your finances allow you to feasibly retire and planning for how future health conditions and expected longevity may affect your budget over time will ensure a financially stable retirement.
We need to make our assets last.
In the past, many financial planners described the financial needs of retirement as a three-legged stool, supported by Social Security benefits, employer pension payment and personal savings. While some baby boomers still have an employer pension, many do not as many employers have moved away from pension plans into less costly 401(k)s. The concern of most people as they approach retirement lies in how to make their assets last throughout retirement.
Retirement planning needs to start when individuals enter the workforce, but certainly if people have 10 years before retirement and have not assessed their retirement, they need to do so. They should consider finding a trustworthy financial planner to help them determine how financially prepared they are for retirement. This includes reviewing expected pension and Social Security benefits, IRAs, and other retirement plans and current contributions to those plans, savings, investments, and current budget, including mortgage and other debt. This process will allow individuals to make adjustments to spending and saving as they approach retirement.
When nearing retirement, a retirement plan becomes even more essential as it will help them position their assets and develop strategies that will protect a portion of their assets and make their resources last throughout their lifetime. For those who have either a minimal pension or no pension, a financial planner may suggest establishing a guaranteed income stream through the purchase of an annuity, which provides a source of income that you cannot outlive. Some retirees may also benefit from using the equity in their home as a supplement to their retirement income needs.
Retirement will arrive before you know it.
In my 40s, retirement still seemed like a distant dream that I had years to prepare and save for. Now retirement looms just around the corner. However, with proper planning, retirement can be approached with confidence in your financial security.
