The baby boom generation, the largest single age cohort in American history, roughly 77 million men and women, is in deep doo-doo when it comes to retirement preparedness. This generation, which has gotten its way and been denied very little in its history in terms of material things, has never been through a depression or even a really bad recession, and has not learned to save or deny itself anything to lay away funds for the day they stop getting a regular paycheck.
To be sure, there are multi millionaire boomers and boomers who have been prudent. But the average baby boomer household has financial savings of less than $50,000 not counting their homes. Counting their homes, it’s slightly over $110,000 total net savings.
Fewer than twenty per cent have meaningful defined benefit pension plans and as anyone at IBM or United Airlines or Delphi can tell you, the defined benefit corporate pension plan as a species in American life is rapidly getting extinct.
Social Security is able to pay for about 30% to 40% of most retirees’ lifestyles as they are presently lived, at the very best. Medicare is a train wreck.
This means something terrifying. When the boomers retire, as soon as they use up their savings, which will take the average family a few years more or less, they will have to cut their life styles in a more dramatic way than any age group in America has done since The Great Depression. The whole glorious dream of living on the golf course, of having a cabin and a boat on the lake, of traveling, of helping out the grandkids....well, it was just some people talking. The reality will be having to sell the family house, living under conditions of extreme stringency, waking up at four a.m. in fear, cutting pills in half, and bitter memories of what might have been.
For many of the oldest of the unprepared boomers, this is now inevitable. There’s no way out. But for the youngest members of the party, the option of saving like madmen is still open. Only it’s not an option: it’s mandatory. In index funds, annuities, mutual funds, real estate, bonds–but best, in all of these things at once.
It is very painful to be poor and old. It is horrible to live in fear and insecurity. But unless the boomers wise up right now, today, and start doing something about it, the future is grimmer than they would have ever imagined.