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The Retirement Income Crisis (and how you can avoid it) - Part II


Potential Problems for Baby Boomers and Their Parents

Statistics show that more than half of the Baby Boom Generation has not done any retirement planning.  Many are counting on inheritances from their parents or the proceeds from the sale of their businesses to support and sustain them throughout retirement. Perhaps that's why Baby Boomers are investing more money in second homes, private schools and BMWs than in their retirement plans.

The problem is this: Just as the Baby Boomers’ life expectancies are increasing, so are their parents’ life expectancies.  This means that not only will the Baby Boomers’ parents spend more money in retirement for a longer period of time; they will also spend more money on expensive healthcare costs.  Those without long-term care insurance risk having to deplete their retirement savings to pay their healthcare costs and are likely to end up having to turn to their grown children for financial help. Making matters worse, Boomers in this situation could easily find themselves depleting their own retirement nest eggs long before retirement and putting their own long-term financial security and independence at risk in order to support their parents financially.   

Another problem for the Baby Boomers is that too many are overestimating the amount of money they'll receive from the sale of their businesses.  Currently, seniors over the age of 80 are the fastest growing segment of the population. The Baby Boomers are the largest segment of the population.  What this means is that when the Baby Boomers begin to retire and want to sell their businesses (ideally, for exorbitant sums of money), there will be fewer people in the next generation to buy them and they will have less money available. Most will end up waiting for Mom, Dad and Grandpa to pass on and leave them money. But with all of those individuals living longer and spending more of their money in retirement, Generation X and subesequent generations will be waiting a long time and will inherit a lot less than they think.  So, who will buy the Baby Boomers’ businesses and be able to pay them enough to support them throughout 20 to 40 years in retirement?  Some experts believe it might be individuals and companies from developing countries such as India or China. Who knows? But there is no guarantee that there will be as many qualified individuals and companies with as much money as the baby boomers are counting on to fund their retirement. 

From Defined Benefit Plans to You Had Better Start Saving, Now!

With corporations having moved away from defined benefit plans, employees are now on their own when it comes to funding their retirement plans and selecting appropriate investments.  Unfortunately, most employees are not fully funding their retirement plans.

Much of their retirement money is instead going to purchase homes, cars, private schools, $150 concert tickets, vacations and dinners out.       

If you are one of many who started saving too late and are now worried about retirement, you now understand the importance of starting to save and invest for retirement in your 20s and 30s.  No matter what your age, you should invest as much as you are allowed invest to in your individual or company retirement plan every year. 

And because people are living longer, everyone from teenagers to retirees must invest more money in stocks and stock mutual funds. Still, even that may not ensure your long-term financial success and ability to avoid the Retirement Income Crisis.

Low-Return Environment: Are we still in a secular bear market?

Did you know that during the 10-year period from 2000 through 2009, the S&P 500 lost 9.4%? Long periods of time where the stock market experiences strong rallies in some years, strong declines in others, and ultimately makes little progress in any direction are called secular bear markets.  Although the market delivered strong returns in 2012 and is off to a good start in 2013, the S&P 500 only recently reached the high point it hit in 2007, nearly five and a half years ago. Although the market has had a nice run since 2009, many market experts believe that the level of government debt, the Fed's long term stimulus programs and other economic factors will ultimately bring the stock market back down to 2008 levels or lower.  That would put us back in the midst of a secular bear market.

The cyclical 2008 bear market reminded us that it takes only one short but nasty market decline to wipe out years of gains in the stock market.  The threat of bear markets, whether they be cyclical (like 2008) or secular (like the period from 2000 through 2009) are a serious danger that retirees and pre-retirees face in building and maintaining a nest egg sufficient to sustain them throughout retirement.  

So, how can you avoid the Retirement Income Crisis? I'll tell you in part III.

Click on the following link to read The Retirement Income Crisis (and how you can avoid it) - Part III: http://www.brightscope.com/financial-planning/advice/guide/6689/The-Retirement-Income-Crisis-And-How-You-Can-Avoid-It-Part-Iii/

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Rich Winer is the president of Winer Wealth Management in Woodland Hills, CA. Winer Wealth Management is a fee-based Registered Investment Advisor offering comprehensive financial planning services including asset management, insurance, retirement and estate planning. Additional services include investment management, insurance, employee benefit and retirement plan services for businesses.  

Rich works with clients throughout the country, especially in California including Woodland Hills, Los Angeles, Calabasas, Tarzana, Encino, Sherman Oaks, Burbank, Northridge, North Hollywood, Agoura Hills, Westlake, Thousand Oaks, West Hills, Beverly Hills and Santa Monica.

For more information, please visit http://www.winerwealth.com or call (818) 673-1695.

 

 

 

 

 

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