Reports continue to come out about the Baby Boomer generation and their retirement. Unfortunately, many of the findings are not encouraging. Many do not have enough money to retire or are running out of money in retirement.
While the initial reaction for some may be, “I told you so,” I have sympathy for this generation and their retirement struggles. Here’s why:
- They are the children of the pension generation. Boomers were raised by a generation that primarily relied on pensions for retirement. Few of their parents invested for retirement. So they were neither taught nor saw their parents set aside money for retirement. There was not the barrage of information and warnings about not saving for retirement. Questions like, should you invest in gold? Were not as popular as they are today. For their parents, preparing for retirement meant getting a good job with a pension.
- The 401(k) was created in 1978. Boomers did not grow up in a 401(k) world. The Revenue Act of 1978 added a provision, Section 401(k), to the Internal Revenue Code. To state the obvious, this means that prior to 1978, putting money in a 401(k) was not an option. And while the 401(k) was created in 1978, there was another problem…
- Not all companies offered 401(k)s right away. The big companies were the first to jump on board. By 1983, about half of large companies offered the plans. So there wasn’t an immediate adoption. This limited the number of years Boomer could participate in these plans, even if they fully understood the importance of the plans. This means that…
- Many Boomers missed out on the most their most critical retirement saving years. A little bit of money + A lot of time = A lot of money. Early adult years are some of the most important retirement saving years. This is due to the impact of compounding. Unfortunately, many Boomers were simply late to the retirement savings game.
- They are living longer than they expected. Many Boomers have and will run out of money during retirement. Certainly, this can be attributed to a lack of savings. But it also can be attribute to a lack of death. Boomers are living longer, but their expenses are not getting cheaper. In fact, they are experiencing a dramatic rise in medical costs, home care services (check out homecaring.com.au).
- They spent a lot of their money on children. Boomers have been known to financially assist their children, even grown children. And while this helped their kids, it hurt their retirement savings.
Of course, none of this solves the problems Boomers are facing. They are still needing to make major adjustments for retirement. But it does provide perspective when reading the negative reports on Boomers and retirement.