The Great Depression Redux might just turn out to be The Great Baby Boomer Wake-Up Call.And none too soon.

This time two years ago, the economy was well into its subprime mortgage meltdown, the federal government  passed a spring-time stimulus package and we were just beginning to hear about the games of chicken banks played with derivative products. We were still a month away from the shocking collapse of Lehman Brothers and the government’s emergency bailout to prop up the financial system.

During the spring-summer period of 2008 roughly five million baby-boomer households (12%) reported they expected to retire within five years.

Today, given the decline in the financial markets and, presumably, the value of individuals’ savings and investments, we don’t know how many actually did. However, based on research conducted on behalf of the Insured Retirement Institute [IRI], we know why- at least pre-crisis- many boomers felt they were ready for retirement.

Warning: as with most things that involve human beings, there are surprising contradictions.

For instance, despite the well-publicized sorry state of Social Security (and the even worse fiscal condition of Medicare), baby boomers continue to count on it. Even pre-meltdown, 80% of boomers who self-reported they were near retirement said they planned to live only on the income they received from Social Security, investments, and bank accounts. Principal would be touched just to pay for emergencies.

In addition, 69% of boomers said they were worried about how inflation would erode their purchasing power during retirement.

Back then, even among financial professionals, few-if any- were predicting corporations would be forced to slash their dividends, one-year CD rates would hover around 1%, the yield on the 10-year Treasury would fall to below 3%, and that for at least the next two years the stock market would alternately swoon, recover and swoon again.

This was hardly the environment that makes living off your investment income easy- or even possible.

Baby boomers who were making plans to retire shared some important characteristics. Although they looked like non-retiring boomers in terms of education, marital status, work status, and amount of debt, they had accumulated significantly more assets. Their average net worth was $717,000; among non-retired boomers it was $444,000. Boomers within five years of retiring reported average financial and investment assets of $817,000 versus $558,000 among non-retiring members of their generation.

While some of this is because boomers planning to retire in five years tended to be older, nearly 50% were between 45 and 59. Individuals describing themselves as “near retirement” had somehow done a better job of saving, investing and managing their assets.

The report also found, “Boomers near retirement are responsible for supporting significantly fewer family members- be it dependent children or dependent adults- than are other non-retired boomers.” 

Cathy Weatherford, president and CEO of IRI, is a perfect example. Like a lot of others, she is a baby boomer who had a “late-in-life child”- who is just now entering college.  The costs associated with this obviously compete with your ability to make financial preparations for your own retirement.

“It’s one of the conundrums for baby boomers that never happened to previous generations,” says Weatherford.  So is caring for parents who are also benefiting from medical advances and living longer.

Then there’s the emergence of “boomerangs”- adult children who move back home. According to Weatherford, “We were such engaged parents. We did everything for [our children].  There is this dependence on us we didn’t know we were creating.” Now it’s coming home to roost.

Initial findings from IRI research show as the first generation to face the blessing and curse of longer life expectancy, as well as the burden of providing the income to fund a 30-to-40-year retirement, baby boomers continue to break new ground- if only because of necessity.

Having permanently altered stereotypical gender roles, marital patterns, family structure(1), and a host of other cultural norms, boomers are coming up with new ways to deal with the financial uncertainty of retirement.

One example is what the IRI report calls, “revolving retirement,” the concept of moving in and out of the workforce, from full-time to part-time, to no job, and back into another stint in the workforce.

“[T]he revolving retired life stage may be the beginning of the establishment of an entirely new life stage- especially when recent financial losses are taken into consideration… [T]here is evidence that boomers near retirement are already forging the way to create the new face of retirement- one that is better suited to their financial needs, longevity uncertainty, and lifestyle preferences.”

An updated survey of baby boomer retirement preparedness is due out this fall. But Weatherford says initial findings suggest the recession served as an “ah-ha moment” for boomers. Boomers are beginning to realize “it’s time for us to take action, for self-responsibility.”

Thanks to uncertainty surrounding Social Security and future returns in the financial markets, 60% of this generation is worried about outliving their retirement assets. According to IRI, the message from boomers is “I’m willing to give up some of the upside of investment returns if I can have that certainty of lifetime income.” 

Could it be true? Are we becoming… conservative?!!!!!

 

1. According to the IRI, instead of having children in their 20s, nearly half of baby boomer households delayed having children until their 30s and even 40s. Three million boomers opted to remain “Child-Free.”

 

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 


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