Post by Erich on Jun 30, 2008 9:44:43 GMT -5
Will youngest boomers go broke?
They're raiding 401(k)s, falling behind on monthly payments and even going without medical care in efforts to keep afloat financially, the AARP warns.
By Jennifer Waters
The economic woes that are forcing homeowners into foreclosure, choking spending on nondiscretionary goods and driving up credit card bills may claim another group of victims in the coming years: broke baby boomers.
Consumers 45 years and older are raiding or compromising their 401(k) accounts, shirking monthly payments and skipping regular medications and doctor visits at an alarming rate, according to senior advocacy group AARP.
As many as 25% of Americans 45 to 64 said they are taking these steps to stay financially afloat, the AARP found in a recent study. That will put them at a decided disadvantage when retirement rolls around, particularly if they have subverted their health, and may lead to putting that retirement on hold.
At the same time, Standard & Poor's reports that the average American household savings rate remains at 0%, making it "more difficult for older Americans to finance their retirement."
"This is a horrific scenario," said Tom Nelson, AARP's chief operating officer. "People are feeling this pinch in the short term . . . but the long-term consequences that are facing these individuals and our economy for years, if not decades, are frightening."
The AARP survey included people 65 and older but found that those who were having the most difficulty adjusting to declining home values and higher prices for food and energy were 45 to 54, followed by those 55 to 64.
The youngest boomers were having the most problems paying their mortgages or rents. They were also more apt to pull money out of their 401(k) accounts and other investments and change their lifestyles. About 76%, for example, said they are eating out less, and 71% said they are spending less on entertainment.
It's likely, the study said, that the younger respondents are having a tougher time because they still have work and family obligations that place them more at risk during an economic slowdown.
At the same time, many people 65 and older have fewer decisions to make because their spending already has been crimped by their fixed incomes, the study noted.
Grim prospects
If this economic downturn worsens or lingers, Nelson said, the future for the youngest baby boomers could be grim.
Nelson painted this picture: A 45-year-old who postpones bill paying, cuts back on necessary medications and stops contributing to his 401(k) is undermining his credit rating, putting his health at risk and losing an economic base. Fast-forward 20 years, and those issues have only gotten worse. Tack on another 20 years, and the situation could be dire.
Mark Iwry, a senior fellow at the Brookings Institution, said it's hard to catch up on missed 401(k) payments. Not only is the actual payment gone, so, too, is the match by an employer, as well as the growth of the tax-free money. "You've got to put in a larger amount just to replace what you took out earlier," Iwry said.
Making matters worse, he said, people tend to assume they're going to die earlier than they actually do. Many don't plan financially to live until they're 90 because they don't think they'll ever get to be 90.
According to the CIA World Fact Book, the average American will live to be at least 78 years old, with women outliving men by about six years.
Meanwhile, the national Centers for Disease Control and Prevention projects that longer life spans and a generation bubble of aging baby boomers will combine to double the population of Americans 65 years and older during the next 25 years. By 2030, the CDC estimates, there will be 71 million older adults who will account for roughly 20% of the U.S. population.
"People often underestimate their life expectancy," Iwry said. "But more than that, many never focus on or plan for 'longevity risk' -- the 50% chance that they'll outlive the average life expectancy, the 25% chance that they'll outlive it by a lot and the 15% chance that they'll outlive it by a lot more."
"Many people don't plan probabilistically, but life is probabilistic," he added. "We're managing risks here."
Major strains
The S&P report, which calls Americans "dangerously unprepared for retirement," notes that the poor performance of asset markets in recent years is hitting the piggy banks of even those most primed for retirement. The S&P 500 Index, for example, is on track to have its worst decade performance since the Depression.
Indeed, 50% of those surveyed by the AARP said the value of their 401(k) accounts and other investments had dropped over the past 12 months. One-quarter of retirees said their golden-years income had fallen in tandem with interest rates.
"Retiring in a period like this strains assets in the best case, and this is far from the best case," said David Wyss, S&P's chief economist. "If older workers aren't adding to their wealth and if their asset values are falling, the prospects of a comfortable retirement are receding."
At the same time, the prospects of retiring early, or even on time, are dimming. The AARP study found that one-fifth of those who said their stock portfolio is lighter are postponing plans to retire. About 32% of those people are at traditional retirement ages, 55 to 64.
Wyss said he thinks more retirees will look for "bridge" jobs but that such jobs can be hard to find.
Iwry encouraged people to delay retirement -- even by a year -- as a generally painless way to shore up long-term finances.
"Retiring later is not all bad," he said. "People can improve their financial preparedness for retirement fairly dramatically by postponing retirement just a little."
Iwry called the benefits a "three-fer": Each additional year of work adds another year of income, which can add to savings, lessen the number of years without a regular paycheck and generally boost monthly Social Security benefits.
"Many people don't take this 'leveraging effect' into account," Iwry said. "A little deferral of retirement goes a long way financially."
This article was reported and written by Jennifer Waters for Market Watch
Published June 13, 2008
They're raiding 401(k)s, falling behind on monthly payments and even going without medical care in efforts to keep afloat financially, the AARP warns.
By Jennifer Waters
The economic woes that are forcing homeowners into foreclosure, choking spending on nondiscretionary goods and driving up credit card bills may claim another group of victims in the coming years: broke baby boomers.
Consumers 45 years and older are raiding or compromising their 401(k) accounts, shirking monthly payments and skipping regular medications and doctor visits at an alarming rate, according to senior advocacy group AARP.
As many as 25% of Americans 45 to 64 said they are taking these steps to stay financially afloat, the AARP found in a recent study. That will put them at a decided disadvantage when retirement rolls around, particularly if they have subverted their health, and may lead to putting that retirement on hold.
At the same time, Standard & Poor's reports that the average American household savings rate remains at 0%, making it "more difficult for older Americans to finance their retirement."
"This is a horrific scenario," said Tom Nelson, AARP's chief operating officer. "People are feeling this pinch in the short term . . . but the long-term consequences that are facing these individuals and our economy for years, if not decades, are frightening."
The AARP survey included people 65 and older but found that those who were having the most difficulty adjusting to declining home values and higher prices for food and energy were 45 to 54, followed by those 55 to 64.
The youngest boomers were having the most problems paying their mortgages or rents. They were also more apt to pull money out of their 401(k) accounts and other investments and change their lifestyles. About 76%, for example, said they are eating out less, and 71% said they are spending less on entertainment.
It's likely, the study said, that the younger respondents are having a tougher time because they still have work and family obligations that place them more at risk during an economic slowdown.
At the same time, many people 65 and older have fewer decisions to make because their spending already has been crimped by their fixed incomes, the study noted.
Grim prospects
If this economic downturn worsens or lingers, Nelson said, the future for the youngest baby boomers could be grim.
Nelson painted this picture: A 45-year-old who postpones bill paying, cuts back on necessary medications and stops contributing to his 401(k) is undermining his credit rating, putting his health at risk and losing an economic base. Fast-forward 20 years, and those issues have only gotten worse. Tack on another 20 years, and the situation could be dire.
Mark Iwry, a senior fellow at the Brookings Institution, said it's hard to catch up on missed 401(k) payments. Not only is the actual payment gone, so, too, is the match by an employer, as well as the growth of the tax-free money. "You've got to put in a larger amount just to replace what you took out earlier," Iwry said.
Making matters worse, he said, people tend to assume they're going to die earlier than they actually do. Many don't plan financially to live until they're 90 because they don't think they'll ever get to be 90.
According to the CIA World Fact Book, the average American will live to be at least 78 years old, with women outliving men by about six years.
Meanwhile, the national Centers for Disease Control and Prevention projects that longer life spans and a generation bubble of aging baby boomers will combine to double the population of Americans 65 years and older during the next 25 years. By 2030, the CDC estimates, there will be 71 million older adults who will account for roughly 20% of the U.S. population.
"People often underestimate their life expectancy," Iwry said. "But more than that, many never focus on or plan for 'longevity risk' -- the 50% chance that they'll outlive the average life expectancy, the 25% chance that they'll outlive it by a lot and the 15% chance that they'll outlive it by a lot more."
"Many people don't plan probabilistically, but life is probabilistic," he added. "We're managing risks here."
Major strains
The S&P report, which calls Americans "dangerously unprepared for retirement," notes that the poor performance of asset markets in recent years is hitting the piggy banks of even those most primed for retirement. The S&P 500 Index, for example, is on track to have its worst decade performance since the Depression.
Indeed, 50% of those surveyed by the AARP said the value of their 401(k) accounts and other investments had dropped over the past 12 months. One-quarter of retirees said their golden-years income had fallen in tandem with interest rates.
"Retiring in a period like this strains assets in the best case, and this is far from the best case," said David Wyss, S&P's chief economist. "If older workers aren't adding to their wealth and if their asset values are falling, the prospects of a comfortable retirement are receding."
At the same time, the prospects of retiring early, or even on time, are dimming. The AARP study found that one-fifth of those who said their stock portfolio is lighter are postponing plans to retire. About 32% of those people are at traditional retirement ages, 55 to 64.
Wyss said he thinks more retirees will look for "bridge" jobs but that such jobs can be hard to find.
Iwry encouraged people to delay retirement -- even by a year -- as a generally painless way to shore up long-term finances.
"Retiring later is not all bad," he said. "People can improve their financial preparedness for retirement fairly dramatically by postponing retirement just a little."
Iwry called the benefits a "three-fer": Each additional year of work adds another year of income, which can add to savings, lessen the number of years without a regular paycheck and generally boost monthly Social Security benefits.
"Many people don't take this 'leveraging effect' into account," Iwry said. "A little deferral of retirement goes a long way financially."
This article was reported and written by Jennifer Waters for Market Watch
Published June 13, 2008