Boomers in Retirement

The first of the Baby Boomers are turning 61 years old this year and that means the first wave of Boomer retirees should come along in about four years, in the year 2011, for Boomers electing to retire at the traditional age of 65.  However it is likely that many Boomers will continue working as a high percentage are in good health and will choose to remain active with a smaller percentage opting to work simply to be able to indulge in a more comfortable lifestyle.  Then unfortunately about 30% of Boomers will continue working, not out of choice, but because they have to.  It is estimated that 70% of Americans have not accurately calculated their financial needs at retirement with half making only modest contributions into their retirement savings and a shocking 15% having saved almost nothing at all.  Financial advisors have long suggested a savings rate of 10% of pre-tax earnings should be set aside in a retirement account, such as a 401(k), but the majority of Boomers have fallen far short of saving at this pace.

It is within the backdrop of American’s failure to save for themselves at a sufficient rate that concern is mounting over both public and private pension systems within the United States.  Though the Social Security system is currently operating with a surplus, this surplus is expected to be quickly depleted once the largest generation of retirees in U.S. history begins tapping into it.  While Social Security is currently paying out at a rate of less than 5% of GDP it is anticipated to begin paying out at a rate rapidly exceeding that while its revenues remain at a constant 5% of GDP.  The situation is expected to progressively worsen as Baby Boomers continue to retire and live increasing longer lives.  The entitlements of Social Security, Medicare and Medicaid should dwarf all other components of the U.S. budget.  The Bush administration has proposed shoring up the Social Security system by shaving recipient’s benefits by 20% beginning in 2055.  The Bush Administration would also like to convert a portion of Social Security from a public to a private system.  And it is also proposed that those who earn the maximum amount subject to Social Security taxes may face a 40% cut in benefits from what guidelines currently allow.  Bear in mind that the average monthly Social Security benefit payable per retired worker in 2007 is $1,044 or $12,528 annually, obviously an insufficient sum for anyone to actually live off of in the first place. 

Unfortunately precisely at a time when the Social Security system requires revamping, the government insurance agency, the Pension Benefit Guaranty Corp. (PBGC), which was established to protect employees participating in their private employer pension plans, is also faced with an estimated liability of $450 billion with about of quarter of that total committed to corporations that are now financially unstable.  Many recent defaults are now coming from industries that are disproportionately unionized such as auto, defense and the airlines.  In fact United Airlines experienced the largest default in corporate history requiring the PBGC to absorb their pension obligation at a cost of over $6 billion. 

Faced with an overburdened under-funded Social Security system as well as a growing number of private corporate pension calamities, it is more important than ever to take charge of your own retirement by saving and investing on your own and to exhaust every available resource through which to do so.   Otherwise you could end up postponing the so-called golden years of retirement indefinitely. 

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