The Big Squeeze
The pressure is on baby boomers saving for retirement. Many also face college tuition and caring for a parent
But for many, if not most, the simplest option will be to work longer. A decade ago, with a bountiful stock market, the vast majority of Americans ages 45 to 54--83 percent--said they planned on retiring at 65 if not earlier. Today, with stocks trading below the highs they reached in 2000, a majority say they plan on leaving the workforce at 65 or older. One in 10 young boomers says he or she never plans to retire.
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Part of this is tied to the current state of young boomers' finances. But it also has to do with the different views that young boomers have about work and retirement than those of their parents.
A recent Merrill Lynch survey of boomers found that only 17 percent want to retire for good. A majority want to either work part time or to cycle back between work and leisure. "What many boomers are beginning to realize is that maybe a life of complete and total leisure is first of all unaffordable," says Ken Dychtwald, chief executive of Age Wave, a consulting firm that focuses on boomer and retiree behavior. "And secondly, they are finding out that it may not be as satisfying as we once believed."
For young boomers, this attitude is a major asset, as working longer--whether part time or in another capacity--for even two more years can drastically improve a retirement plan.
A study by Hewitt Associates last year, for example, found that workers ages 50 to 54 at large U.S. firms--many with rich retirement plans--were on track to replace nearly 89 percent of their income if they retired at 65. This figure includes not just 401(k) balances but proceeds from pension plans and Social Security.
However, delay retirement to 67, and they would be able to replace more than 100 percent of their preretirement income.
This is why Patti Brennan, president of Key Financial, a financial planning firm in West Chester, Pa., says it is important for young boomers to plan for a so-called transitional phase between work and full retirement.
You can use this transitional phase to test the waters for retirement. The last thing you want to do, says Brennan, is step out of the workforce and begin tapping your nest egg just as a big bear market approaches.
Back to work. This transitional phase can also be used to build up additional savings by working longer. This is what the Eberts say they plan to do. After their youngest child finishes college, Margaret may shift from part-time work back to a full-time schedule while Paul might work well through his 60s to compensate for the years in which their retirement savings were diverted to college bills.
The good news is young boomers are by nature flexible. A recent survey by Principal Financial asked workers 45 to 54 what they would do if they found Social Security doesn't provide them the income they expected. The vast majority said they would either work longer or phase into retirement.
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