These days we have plenty of research to draw on in developing retirement income plans that will really work. Problem is, research is based on hindsight. As useful as statistical information can be, we can’t afford to simply take it at face value. We have to position the research in light of individual circumstances and changes that are going on in the world.
For example, a new study by the PEW Charitable Trusts Upward Mobility Project contrasts the ability of five generational segments to retire based on a) the level of savings they had accumulated before the Great Recession and b) how the Recession affected their wealth.
These next three posts will look at their findings. We’ll start with early and late Baby Boomers. Then we’ll look at Gen-Xers and what they are facing as they prepare for retirement. The third post in the series will look at the Echo/Millennial generation and what they should be doing now to ensure their options.
The Boomer generation includes me and, probably, a lot of you! According to the PEW report, Boomers born between 1946 and 1955 fared the best of all generations as they reached retirement age. They had higher overall wealth, financial net worth, and home equity in their 50′s and 60′s than either of the generations before them.
But neither early nor late Boomers had accumulated as much wealth by their 40′s and 50′s as the GI generation before them. As they moved into their 50′s and 60′s, however, that picture changed. Early Boomers were in their 30′s and 40′s in 1989 and in their 50′s and 60′s in 1998. Late Boomers were in their 30′s and 40′s in 1998 and in their 50′s and 60′s in 2007.
Both of these Boomer segments approached retirement just before major market bubbles burst. For early Boomers, it was just before the Tech Bubble burst; late Boomers got there just before the 2008 crisis.
Both early and late Boomers lost from 25% to 28% during the 2008 crisis.
But early Boomers were able to build wealth from both the dot-com bubble and the housing bubble, adding about 83% to their wealth during that time. Before the dot-com bubble, early Boomers trailed the GI generation for wealth accumulation during the same age bracket. Net, net, early Boomers may have lost around 30% of their wealth but they had accumulated more to begin with.
It’s easy to say from these statistics that early Boomers are better prepared for retirement at this point in time. But if we consider what retirement means to the Boomer generation as a whole compared to the GI and silent generations before them, the question of how prepared the Boomer generation really is for retirement takes on a different tack. The greatest numbers of new businesses are being created by people age 55 and older. Boomers in general are also remaining more active in their later years. Just as they have redefined every other life stage they have entered, Boomers are redefining what retirement looks like. A recent article highlighted Boomer women who are choosing to live together much like they did in their college years to take the burden of their care off of family members. One woman is actually starting a business organizing these communal living arrangements!
Many investors will take statistics like the ones in the PEW study at face value and will worry that they have not saved enough. They may or may not be better off than they think. As informative and helpful as these studies are, retirement is a life stage that should take into account many different factors. That’s exactly what we do here at Froehlich Financial. If you’d like to see how your retirement picture stacks up against the PEW study statistics, we’d love to join you in that discovery. You can reach us by phone at 732-974-6400, or you can email me personally at firstname.lastname@example.org.