What It Means to Be a Baby Boomer

This article was created by Lincoln Financial Securities Corporation for use by Don Garton.

What does it mean to be a baby boomer? First, there are the demographics: 26.5 million leading-edge boomers, those born between 1946 and 1952, will turn 60 over the next six years. Trailing them? Another 50.5 million younger boomers, based on figures from the U.S. Census Bureau.

Then there’s longevity. In 1990, according to the U.S. Census Bureau, 37,000 Americans were 100 or older. By the 2000 Census, the number had climbed to 50,000—and it is project to continue growing in the future.

Now, the crunch. Many Americans may be under-prepared – economically and psychologically – for what lies ahead. It is important to plan because there may not be a second chance. When accumulating assets for retirement, you can monitor how you are doing and make changes during that time. Many people spend the last decade that they work in a “sprint” to retirement, saving as much as they can. However, in the distribution phase it is more difficult to make these adjustments and once you run out of money, there is no reversing that.

The Economic Landscape

Here are some of the dominant trends in play right now:

Many more Americans will be supporting both a child and a parent. These people have been labeled as the “sandwich generation” because they are supporting people both older and younger.

Many boomers have an expensive lifestyle: They like to go out to eat, they like to travel, and they like toys such as pricey electronics or cars. Yet many boomers don’t have a defined benefit plan or maybe won’t be able to rely on one at retirement.

More than two-thirds of boomers don’t know how to categorize their expenses in retirement, according to a 2004 industry study. One common fallacy: People generally have the wrong idea about an annual withdrawal rate—putting it at 8% or 10% of savings, when 4% is the projected accepted norm. If you have a skewed idea of how much money you should withdraw, you’re eventually going to find out you’re not in as good of shape as you thought.

With Social Security and pensions under siege, many Americans are beginning to realize they are going to be responsible for funding their own retirement. The downside is that most boomers may be ill-equipped to manage their assets. Even those boomers who can and want to manage their money might be able to do so in their 60’s and 70’s, but what about in their 80’s and 90’s? Are they still going to have the capacity to make crucial decisions?

The top three goals for boomers are: an income stream you cannot outlive, particularly for necessary expenses; creating a hedge against inflation; and establishing efficient means to transfer wealth to heirs or charities in the event of premature death.

The way advisors are counseling people is that retirement is no longer a black-and-white issue; it’s now a thousand shades of gray. Retirement isn’t about jumping in up to your neck. It’s about wading in up to your knees or waist.

As an example, boomers—healthier and living longer than previous generations—are beginning to work in creative ways after so-called retirement.

For example, instead of working at a magazine, you’re at home freelancing. Instead of being a hospital administrator, you’re consulting. Maybe you decide to start an Internet business or lend years of management experience to a nonprofit organization. By staying engaged, it’s not only good mentally and emotionally, it’s healthy from an economic standpoint. Working a minimum of four to five years past retirement takes tremendous economic pressure off of the situation.

Funding Retirement

To better understand your income needs in retirement, you should outline your expenses and how they should be funded or linked to income sources.

First are the necessary expenses of food, clothing, housing, transportation, insurance and taxes. The income sources: employer pension, Social Security and other self-funded options such as a non-qualified annuity. As long as you have money for these necessary expenses, you can maintain your financial independence, economic freedom and dignity. These expenses need to be linked with income sources that you can not outlive.

Next are “nice-to-have” expenses like travel, hobbies and entertainment, which should be supported by dividends and interest from existing capital.

After that: Accumulation goals that could include college tuition for a grandchild, a second home or a boat. Those are expenses that generally require the sale of capital assets.

Last, there is wealth transition to heirs and charities, funded by the remaining assets and insurance proceeds. The important thing to realize is that retirement is not a black-and-white issue.

There are myriad options from which to choose; you just need to crystallize your vision of retirement and understanding the various options that are available.