Evelyn M. Zohlen
CFP, President, Financial Planning Association
The baby boomers know a thing or two about changing financial trends. Here’s what they can teach us about saving for retirement.
Seventy-five million people strong, the baby boomer generation has seen and experienced plenty. Born between 1946 and 1964, they have been through multiple wars, varying extremes of economic prosperity and distress, the Summer of Love, Watergate, the Space Age, the rise of television and Internet, America’s first black President — the list is a long one.
It is against this multifaceted historical backdrop that boomers have developed their generation’s concept of financial management and stability. And they’ve gotten some things right. So, what can we learn from them about how to handle our money and finances?
How not to retire
Baby boomers have reinvented the concept of retirement. Many don’t see themselves following the path of past generations where age 65 brought a hard stop to their careers and an immediate start to retirement. Many now plan to keep working through their 60s and beyond. In a 2016 survey of employed boomers, 66 percent plan to or already are working past age 65 or do not plan to retire at all, and only 26 percent indicated plans to stop working when they reach a certain age. Roughly half said they plan to continue working for the income and employee benefits, whether out of necessity or to maintain a certain lifestyle. Additionally, they know that continuing to work also allows them to keep building Social Security benefits, which can be an important source of retirement income.
How to handle a financial sandwich
Baby boomers — and younger members of the generation in particular — are likely to find themselves “sandwiched” by competing financial pressures: providing financial support to their aging parents and their children, while still trying to meet their own monetary goals and obligations. A Pew Research Center study from 2015 found that 47 percent of Americans ages 40-59 not only have one or two parents age 65 and older for whom they’re providing financial assistance, but that they’re also either raising a young child or have provided significant financial assistance to a grown child in the preceding 12 months.
As difficult as those competing financial and family priorities can be to handle, baby boomers are providing members of other generations with a form of blueprint for handling such situations. That blueprint includes putting the myriad related issues out on the table for discussion among the involved parties, and then creating a plan to address them together.
How to pay yourself first
Boomers have learned that it’s important to make personal financial goals and obligations top priority. For example, as retirement looms closer, boomers in general choose to prioritize saving for their own retirement over fully funding a child’s college education. Logically, the child will have more time to pay off student loan debt than the parents will to build an adequate nest egg for retirement.
How to save without a pension
In recent decades the responsibility for funding retirement has shifted from the employer to the employee, and baby boomers stand at the crux of that shift. They don’t have access to a guaranteed lifetime income stream, such as an employer-sponsored pension plan, like their parents did. According to the Employee Benefit Research Institute, only about 2 percent of workers in private industry today are participating in a defined benefit or pension plan — down from 28 percent back in 1979. The ascendance of “defined contribution” retirement plans like 401(k)’s in the past several decades has forced boomers, as well as members of subsequent generations, to develop good retirement savings habits with little or no help from their employers.
How to enjoy retirement
Spending habits suggest baby boomers view retirement as an opportunity to pursue dreams or give back to society. One study found that in the first two years after retirement, 46 percent of households spent more than they had in the year before retirement. Even by the sixth year of retirement, one-third of retired households were still spending more. So, while it’s important to save for retirement, it’s equally important to devise a decumulation strategy to adequately fund your desired retirement lifestyle.
While certain baby boomers might go it alone as they’ve learned to do over the years, there are numerous resources to help you manage your finances, including professional help. A CERTIFIED FINANCIAL PLANNER™ professional from FPA can help you create a financial plan to achieve all your life and retirement goals.