Dear Friends-

You’d have to be either a) living in a cave, or b) comatose to not notice the incessant barrage of messages we’re getting about preparing for retirement. To borrow a tired metaphor from the headlines, there’s been a “tsunami” of ads and articles exhorting us to Estimate! Save! Plan!

Expect the cacophony to only get louder.

Blame the baby boomers, of course. This huge generation has been influencing everything from consumer products (think, Hula Hoop) to social policy (recall those demonstrations for equal rights) as it grew up. Born from 1946-1964, boomers are now approaching their 60s, the decade during which people have typically retired. So, to repeat the instructions given to Watergate investigators: Follow the money.

Contrary to popular myth, baby boomers have a lot of money--or, to be more precise--a significant portion of boomers do. For sure, in a group this large (around 77 million) and diverse there are also a large number who don’t. But they’re not the ones the being targeted with the messages--those are squarely aimed at boomers with retirement accounts such as IRAs, 403(b)s, 401(k)s, etc...

Baby boomers have a lot of nicknames, but in terms of retirement, they’re “the 401(k) generation,” the first Americans charged with do-it-yourself retirement.It's like  a grand social experiment--with a lot at stake. How well boomers invest, manage and spend the money they’ve saved by the time they retire will determine the quality of life they’ll have for the rest of their lives.

Literally.

That's a lot of responsibility. One that probably a minority are capable of and the rest should get professional help. What’s the best way to invest the money in your company retirement plan? Should you roll it into an IRA when you change jobs?Traditional or Roth? What about an annuity? Don’t forget to keep your beneficiary designations current. When should you start Social Security? What will health care cost?  How long will you live? 

“Pick me!” cry the ads for brokerage firms, annuities, financial advisors, and an increasing array of financial products. 

Prior generations of retirees never had to worry about these things because, according to another myth, their employers took care of them with cushy, guaranteed pensions. In reality, at their peak, defined-benefit plans only covered about 30% of private sector workers. In other words, back in the so-called “good ol’ days” most working Americans had zero retirement plans offered through an employer. 

Of course, even if your company held out the carrot of a pension, you lost much--if not all--of that if you changed employers. As a result, some folks (my dad, for instance) stayed in boring, dead-end jobs they hated just so they would be eligible for the retirement benefit. Of course, if it didn’t come with an inflation adjustment, over time, the retiree found his/her check bought less and less. 

Still, baby boomer parents did enter retirement with some distinct advantages: 1) comparatively generous Social Security benefits; 2) low debt; 3) frugal spending habits, thanks to the experience of living through the Depression.

In addition, those who owned homes in certain areas of the country benefited from soaring real estate prices in the 70s and 80s thanks to a new generation of parents-- baby boomers--looking for homes to raise the families.

In short, previous generations didn’t save much, if anything, for retirement. Boomer parents couldn’t afford to save because they  had too many kids. Besides, no one ever expected to live more than a few years after they retired, anyway.

Boomers are both blessed and cursed by the fact that they have significant control/responsibility over the amount of assets they’ll have at retirement. While there are more ways to save compared to their parents’ generation, these accounts are only an advantage if you fund them.

A survey by Bank of America found that 22% of Americans who have access to a 401(k) don’t make contributions. Only one in 10 individuals who are eligible to make an annual contribution to an IRA does so, according to the Employee Benefit Research Institute (EBRI). A third of those polled by the bank said retirement planning is as hard as starting and sticking to a diet or fitness routine.

It might be small comfort to learn that having more money doesn’t make the process any easier. Typically, more affluent households are assumed to be more sophisticated about financial issues. But Bank of America’s Dan McNamara admits they were surprised that one out of three households deemed “affluent” (defined as having $100,000 to $3 million in investable assets) said it’s hard to figure out what investments are appropriate. 

Twenty-four percent aren’t sure how to estimate how much they need to save in order to retire comfortably.(1) 

That’s something global financial giant ING would like to help you with. It’s “What’s Your Number?” campaign is aimed at giving you a wake-up call (or heart attack) about just how large a nest egg you’ll need simply by entering a few basic number into their online calculator (www.INGyournumber.com).

Take it with a grain of salt.

In an effort to simplify the math, there are a lot of assumptions built into this tool (in fact, into all free online calculators) that may or may not be relevant to your particular situation--or even reality. After all, who really knows what inflation will average or what your portfolio will return during the 30+ years you spend in retirement?  Sri Reddy, head of ING’s Wealth Management division, concedes “Your Number” is designed to be “a high level overview [and] not a substitute for a comprehensive plan.”

Still, if it jolts you into taking that step it’s probably worth the exercise. Particularly if, say, your spouse wants to spend that tax rebate check from the government and you want to stick it in your IRAs.

“It might be a rude awakening,” says Reddy, “but a necessary one.”

Next week: What’s going to eat up the biggest portion of your retirement income? (Hint: it’s not health care expenses.)

Hope this helps,

Gail  (Go Pens!!!)

1. Among the general public, the 42% said planning for retirement is as difficult as starting a diet/fitness regimen; 40% were clueless about how to estimate the amount of money they need to save.

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.