As I have written in the past, our beloved Baby Boomers have moved from being the biggest earners over the past twenty years and thus the biggest spenders, now moving in to retirement and with this the largest group of savers, a major drain on HealthCare, Pensions and overall government support. Could they alone dictate what will happen to our economic future?
Despite the recession, boomers want more from retirement. What they're willing to do to get it -- and what they may be missing in their plans.
Watch the news long enough and you'll remember there are two sides to every story -- even financial ones.
In recent months we've been inundated with depressing news about how many boomers can't afford to retire and how they fear they'll outlive their money. The latest number out of the U.S. is that almost 60 per cent of baby boomers won't have enough money to cover the basics in retirement, according to a report in the Wall Street Journal. A recent survey conducted by Allianz Life Insurance Group found that the majority of boomers feared outliving their assets more than they feared death.
In other words, things are looking pretty bleak...
Or are they? True, the economy has turned many people's retirement plans on their head, but many boomers haven't lost their optimism -- or perhaps their high expectations?
Boomers want more from retirement
Here's a counterpoint to the doom and gloom: despite the challenges of longevity and the economy, many boomers have high hopes for retirement. For example, in the Allianz Life Survey, 80 per cent of respondents expected their lifestyle in retirement would be better than their parents', despite worries of not having enough cash.
When we hear that so many boomers can't afford to retire, we often imagine an impending struggle just to make ends meet. However, there's a big difference between not being able to afford basic needs and not being able to afford one's current lifestyle -- let alone fund a better one. Adding fuel to the proverbial fire is the fact that the line between "needs" and "wants" is increasingly becoming blurred, according to a new poll.
The Boomer Retirement Lifestyle Study, conducted by Harris Interactive on behalf of Mainstay Investments, found that things that used to fall on the luxuries side of the budget have now moved over to necessities. (Bear in mind the respondent pool consisted of people who already had some assets -- the study polled more than 1000 U.S. adults ages 45-65 who are still working, who have at least $100,000 of investable liquid assets and who are at least partly responsible for making household financial decisions.)
The results? While everyone needs food, shelter, healthcare and clothing, 84 per cent of boomers also felt an internet connection is a basic need -- second only to healthcare -- and two thirds of respondents say shopping for birthdays and special occasions is also a requirement. Yearly vacations, weekend getaways, professional haircuts and coloring, home care, pet care and funding their children's and grandchildren's educations were also on the must-have list for nearly half of all respondents.
Dining out is also a luxury many boomers would be loath to give up -- in fact, more than 65 per cent of respondents feel it's a necessity too.
"When it comes to lifestyle, Baby Boomers are redefining what constitutes a basic need and what they consider a luxury. We have clearly expanded beyond the three traditionally thought-of necessities -- clothes, food and shelter." said Matthew Leung, director and head of practice management programs at MainStay Investments, in a press release. "Boomers essentially want it all."
Sacrifice now, spend later
They want it all in retirement -- but boomers are also willing to make some sacrifices to get it. The Mainstay study also reported 55 per cent of boomers would rather work longer than give up luxuries/necessities. Forty per cent of boomers polled admit that they'll have to put off retirement as a result.
One luxury they are willing to give up? A large home. Nearly half of respondents say they would be willing to downsize in order to afford the "wants".
We already know that many boomers are delaying retirement in order to beef up their assets, but that's not the only step they're taking. They're adjusting their portfolio allocations -- that is, rearranging their investments -- and spending less. Three quarters of boomers in the Mainstay study said they would prefer to save now and have the life they want in retirement than "have it all and have it now".
Indeed, the most recent census data (from 2008) out of the U.S. shows that older adults have seriously curbed their spending compared to ten years earlier. While they're spending more on medications, gasoline, healthcare and health insurance, people who are approaching retirement age have slashed their spending on entertainment, vehicles, food, eating out, clothing and furnishings. (Read the article in the Wall Street Journal for full details.)
While it should come as no surprise that people approaching retirement are setting more aside, the changes in spending have some economists worried. Some have even gone so far as to claim that boomers' and seniors' more conservative habits could be slowing economic recovery. Their logic: spending is essential for boost the economy and bolster up shrunken nest eggs and depressed home values. After all, while individual boomers may be struggling, collectively this cohort controls a significant portion of the wealth in North America.
What's missing?
So will smart boomers make ends meet? Not so fast... Critics are quick to point out that people's survey responses don't always reflect their habits and behaviours. Most people know they need to save more, but there are still some serious gaps in the planning process -- like not knowing how is much needed to retire, not having a retirement plan and not having an income plan for post-retirement.
Many people are choosing to go it alone even if they do have a plan. The Mainstay study found that less than half of respondents had a financial advisor. In Canada, the numbers are the same: according to a recent survey from the BMO Retirement Institute, less than half of Canadians over the age of 55 have talked to a financial advisor -- or plan to talk to one. Furthermore, many boomers are so busy planning for retirement that they haven't given much thought to what happens after they cross the threshold: less than half of all boomers have a post-retirement income management plan. (See Will you outlive your money? for details.)
In addition, there's more to a fulfilling retirement than money. Experts also note that focusing on maintaining good health and social relationships goes a long a way to towards a happy retirement.
Naturally, the statistics are going to change -- and we're going to have a lot more thrown at us in the months and years to come. No one can predict what's going to happen as baby boomers begin to retire, but this generation has always been at the vanguard of change. One thing we're guaranteed -- it's going to be an interesting ride.
by Elizabeth Rogers, 50Plus.com
Saverio Manzo
http://www.saveriomanzo.com/
Source: Abby Joseph Cohen ‐ Goldman Sachs, Morgan Stanley, Michael Hartnett‐ Bank of America Merrill Lynch, RBC Capital, Donald Coxe ‐ Coxe Advisors, BMO Capital Markets , David Rosenberg ‐ Gluskin Sheff + Associates, Barry Ritholtz - The Big Picture, T. Rowe Price, Federated Investors, Brain Fabbri ‐ BNP Paribas, Sherry Cooper – BMO, Kurt Karl ‐ Swiss RE, Investment Postcards, Barry Ritholtz, Peter Grandich, Nouriel Roubini, Marc Faber, Bill Gross ‐ PIMCO, Barton Riggs, Eric Sprott – Sprott Capital, Jeremy Siegel, Steven Leuthold, Jeremy Grantham & Merrill Lynch Fund Managers Survey
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