Secure Retirement May Elude Boomers

Despite their reputation as a generation of live-for-the-moment spendthrifts, Baby Boomers appear to be saving more for retirement than did their parents. But they still won’t be as well off.

Moreover, current retirees have been lowering their standard of living in line with reduced retirement incomes. But, with lifespans lengthening, it won’t do them much good either. They might live long, but they won’t prosper.

These are among the bittersweet findings of an survey conducted independently for The Equitable Life Assurance Society.

Although a life insurance company such as The Equitable has an interest in promoting savings, the report is in line with other studies, with one exception. Boomers with the means to do so are saving, but it may be a case of too little, too late.

The national survey confined itself to 1,200 relatively affluent Americans: those with household incomes during their working years of $50,000 or more.

“The current Baby Boomers are much more sensitized to their personal responsibility. They started saving earlier, they’re much more in tune with their needs, and they’re less likely to be counting on Social Security,” said James Benson, president of The Equitable.

Boomers, defined as those born between 1946 and 1964, are on the right track there, since experts raise real doubts about how much Social Security will be able to offer Boomers in retirement.

Nonetheless, Boomers’ efforts are “probably more than offset” by the erosion of oncepaternalistic company pension plans, Benson said. Corporate America is shifting more investment responsibility onto often ill-prepared employees.

Instead of traditional pension plans that guarantee employees a specific monthly retirement benefit, corporations increasingly offer employees so-called “defined contribution plans” such as 401(K) programs. Those programs leave individual employees responsible for the investment of their own company retirement accounts, to which the company contributes a specific sum.

Studies repeatedly have found most employees choose conservative investment options that underperform professionally managed pension funds.

Perhaps sensing the difficulties ahead for them, Boomers surveyed for the study started saving earlier and were quicker to draw up financial plans than their elders.

The Boomers began building their nest eggs at a median age of 28, compared to age 35 for current retirees.

The respondents in the Baby Boom generation had a median age of 43 and a median income of $84,000. Typically they have put away $103,000 for retirement.

That leaves them with the daunting task of saving $48,500 annually to retain their current standard of living after retirement at their expected age of 60, Equitable concluded.

Still, the Boomers are well ahead of the generation now nearing retirement, which the study defined as current workers born between 1910 and 1939. Despite median incomes of $93,000, the older workers, at a median age of 59, typically have put away only $284,000.

For those older workers to retire at age 65, as they expect, they would have to save their entire pre-tax income until then to avoid a decline in their standard of living, the Equitable concluded.

The current retirees surveyed typically had left their jobs at a median age of 60. Although they have reduced their spending to a relatively modest median of $29,000 per year, their retirement lifestyles leave them in danger of running out of money well before the ends of their lives.

Now at a median age of 67, even with their typical remaining nest eggs of $220,000 and monthly assistance from private pension plans just less than $1,500, the current spending habits would exhaust savings at age 82, according to the Equitable.

But these retirees can expect that they or their spouses will live at least 8 years longer, until 90, according to actuarial tables.