Boomers Believe their Retirements Won’t Compare to Parents’
Much attention has been devoted to how the Baby Boom generation (those born between 1946 and 1964) will fare economically as they become older. Numerous studies document the vast gulf between their perception of what they expect in the future and their ability to attain such goals. Despite today’s good times, many in this generation have not financially prepared for much of a lifestyle ten to twenty years from now. This article highlights the forces that shape how Baby Boomers are responding to retirement planning and articulates the challenge that they pose for many professionals in the financial planning industry. The question is how to motivate a generation to plan for a retirement transition that is far off in the future, a transition that they see has little in common with their parents’ experiences.
Baby Boomers are adamant on one point: Their retirement will be different, a period filled with travel, self-improvement, limitless activity, and resurrected adolescent dreams that have yet to be satisfied. Baby Boomers have the idea that they can challenge every stereotype we have concerning aging. The problem is that, although Baby Boomers can articulate what they envision their lifestyle to be, they have given minimal thought to how they will arrive at this point. From a psychological perspective, this generation perceives itself as evolving into a new world without following a linear process of planning. From my perspective, the more we try to get Baby Boomers to adopt an orderly step-by-step march into aging, the more they will rebel against it. Baby Boomers think they have always marched to a different drummer.
To understand many of their psychological and attitudinal disconnects we must adopt a new approach to understand how they process and constitute their reality. The Baby Boomer generation has adopted an anti-cyclical perspective in moving through life. Roles once traditionally negotiated only at certain prescribed ages are now being experienced throughout one’sentire adult life span. With fewer societal constraints, Baby Boomers feel quite comfortable in moving back and forth between roles, constantly reinventing their self-identity. It is for this reason that the traditional model of retirement planning has failed — it assumes that we can anticipate and predict an orderly change of roles and priorities according to clear chronological markers.
If there is anything unique about Baby Boomers’ lives, it is the unpredictable nature of when they will attain economic, social, and family goals. In fact, since many Baby Boomers feel much younger than their actual chronological age, they still believe that anything is attainable, at any time. From the perspective of aging as nothing more than a continuation of life as usual, we will most likely see this generation heading back to school at age sixty-five; developing entrepreneurial businesses at seventy; and climbing mountains at eighty. If there is anything we can depend on in the future, it is the abandonment of any uniform qualities of what constitutes being old in America.The new retirement paradigm recognizes that future retirees will be more active and suffer fewer chronic health problems than their parents. In fact, when a financial advisor sits down with a Baby Boomer client, it is not unusual to address the needs of up to four generations.
WHAT IS DRIVING THE NEW RETIREMENT APPROACH
To understand the differences between today’s and yesterday’s retirement planning we must examine the forces that are reshaping the last stage of life. If financial planners are to engage in retirement planning for Baby Boomers, they must understand the dramatic shift in what is perceived as retirement. Many financial planners report that it is difficult to sell some clients on the merits of retirement planning, because the clients don’t identify with the word itself. A variety of elements must be understood in order to effectively position the new retirement paradigm.Retirement planning has been predicated on the notion that, as one moves closer to disengagement from the work force, it is critical to use a planner to predict pension benefits, needed cash flow, and so on. A major problem of the old retirement planning paradigm is that it is predicated on chronological age. We are now living in a society in which age has become irrelevant. Retirement planners can no longer predict with certainty how clients interpret the meaning of being “old,” and what roles they want to discard or reconstitute. A major component in understanding the new retirement paradigm is accepting that all bets are off in generalizing what older adults want in their later years. If anything, we now realize that the aging experience is highly individualized, and no two clients will have the same goals and objectives.
The very concept of what constitutes a family is undergoing significant change that impacts all levels of retirement planning. In the last decade, mid-life divorce has tripled in the United States. The old retirement paradigm assumes that couples negotiate their older years together. Now, we recognize that singleness will be a major factor (particularly for women). Moreover, women are delaying child-bearing until their late thirties or forties. For the financial planner, this means building economic models that assume a person is reaching age sixtyfive as a child is beginning college. At the same time, planners will need to consider the economic demands placed on clients who must provide care to children and older parents at the same time (the “sandwich generation” dilemma).
Abundant research documents that men and women have different retirement experiences. Factors in this divergence of experience include longevity (women live longer than men); investment patterns (women have less retirement equity compared to men); and pension access (as many as 52% of working women are not covered by any defined-contribution or 401(k) plan). Thus, financial planners must develop different retirement information and financial investment strategies, depending on the sex of the client.
At the same time that retirement ages are going down, many people indicate that they want to maintain some role in the work force. The old retirement planning model assumes that an individual at sixty-five would completely disengage from the work force. Now, it is a mistake to believe that future retirees will not be involved in the work force in some entrepreneurial business or consultation role. In fact, given their current savings patterns,
many Baby Boomers will be required to work in some fashion well into their seventies.
The fastest growing age group in our society is the eighty-five-plus group. People could once expect to live an average of seven years after retirement. Today workers (particularly women) could spend a total of thirty years in “retirement.” How do financial planners get clients to recognize that they must plan financially for the possibility of living to age 100?
The financial advisor will need to help middleaged clients map out secondary career roles as part of the planning process. Corporations are unfortunately doing little to plan for an older work force. Financial planners may have to play a greater educational role in helping business understand the financial and pension implications of this worker demographic shift.
Baby Boomers’ Retirement Visions are Ambitious
Nearly half (48%) of Baby Boomers believe they will retire before age sixty-five. 18% said they will retire at sixty-five; 13% said they’d work past sixty-five, and 20% are not planning to retire at all. Baby Boomers are planning active retirements. 38% plan to travel; 27% to pursue hobbies; 24% to spend time with family or home-related activities; and 10% want to pursue volunteer work or education. 43% of Baby Boomers realize they will have to pursue some kind of paid employment after retirement. Those who saved their money during childhood (until age seventeen) are more likely to feel their retireme One-third of Baby Boomers (32%) predict their retirement will be less financially secure than their parents’. College graduates are more likely to believe their retirements will be less secure than parents’. Childhood avers (as above) are more likely to feel their retirements will be less financially secure than their parents’.
Over 1996–1999, the National Center for Retirement Research at Long Island University underwritten by Scudder completed a three-year study of the retirement planning practices of Baby Boomers. This national study sampled both men and women through a 104-question written survey. The findings presented here are based on 1,100 Baby Boomers with household incomes above $30,000 who were surveyed in the first year. 70% of Baby Boomers say they are worried about their financial futures. Those who are pessimistic feel less secure financially than their parents, plan to retire at age sixty-five, and are more likely to be worried. The top three sources for financial advice are: 68% personal research; 36% friends or family members; and 25% financial advisors. 78% of Baby Boomers prefer using an on-line broker for investment.
The Baby Boom generation is often accused of living in the present, with no concern for the future. Our present study validates that worrying only about present financial security has the most negative influence on retirement planning attitudes, taking appropriate financial actions, and future economic security. This finding is understandable, given the economic and social pressures on this group: job uncertainties, corporate downsizing, rising divorce rates, increasing tuition expenses, inadequate salary increases. In terms of priorities for boomers, “the present” seems more important than the intangible future. In fact, cultivating optimism in the present has a salutary influence on actions today and in the future, and a positive effect on planning for financial security in the future. We can use this insight to answer a fundamental question that has eluded retirement planning experts — how we motivate boomers to address their future economic needs when they can only see their present needs as being paramount. One way to nurture a sense of security in the present is to illustrate the short-term benefits of investment planning, which at the same time ensures future economic stability.
Boomers have displayed tremendous energy in funding priorities that can be seen, touched, and experienced in the here and now. As a group, they have significant difficulty planning for an event that may be fifteen years down the road. Thus, we must reshape and repackage the nature and purpose of investments into a scheme that they can relate to. Future travel, leisure, and enjoyment are not nearterm life events that boomers can understand. What they can relate to is understanding the need to save or invest money to address their present concerns, which are acquiring job security, adding more leisure to their life, or paying a child’s college tuition. To encourage proactive investing, we must help Boomers link savings with specific life events or short-term goals: tangible concrete priorities that can be achieved via specific investment funds. The changing of attitudes concerning investing should have a positive impact on all facets of what we are attempting to achieve in the traditional retirement preparation message. Taking this one step farther, we can encourage more use of 401(k) funding and mutual fund savings if we show boomers that investments can speak to the present.
Author: L. HAYES