The retirement of the Baby Boomer generation (those born between 1946 and 1964) is a financial concern for the entire nation. As the largest U.S. born generation, this group of 76 million people reaches retirement age between 2011 and 2030. In other words, about 10,000 Baby Boomers retire per day. According to research by the Insured Retirement Institute, 24% of Baby Boomers have no retirement savings.
What Pension Crisis?
Many Baby Boomers are public-sector employees who will begin to withdraw pension payments upon retirement. As of 2015, public pension funds were valued at around $1 trillion below their liabilities according to the National Association of State Retirement Administrators (NASRA). However, the updated values illustrate a deficit that is actually much higher due to two main factors: the old age dependency ratio and declining investment returns.
Old Age Dependency Ratio
The Baby Boomers are on track to withdraw retirement payments faster than the following generations and annual returns can refill the funds. There is a global trend in first-world populations towards increased life expectancy and a decline in birth rates. There are now more retirees, each living longer to collect benefits than previous generations. In 2015, the Millennial generation exceeded Baby Boomers due to the immigration of Millennials and mortality of Baby Boomers. However, Millennials are defined as the group aged 18-34 in 2015 and have not been contributing to retirement funds until relatively recently. Both the Baby Boomer and Millennial generations exceed Generation X which separates them.
Declining Investment Returns
Pension funds are designed to be conservative and low risk, earning reliably over an extended period of time. NASRA estimated an average annual return of 7.6% for 2015, but the actual return rate was 3.2%. One reason for this is that pension funds have historically relied on U.S. Treasuries. Looking at the bellwether 10-year Treasury note, yield has decreased drastically from 16% in 1981 to 2.5% today.
What Can Baby Boomers Do?
The needs and options for each Baby Boomer will depend on their previous saving habits and the number of years remaining until retirement. Baby Boomers who will retire later than others in their generation may have more remaining options, but also be subject to the impacts of depleting funds in later years. These retirees should consider adjusting their plans before retirement, and even consider retiring later if possible. For those who are already retired, modifying your investment portfolio or making lifestyle changes to ensure savings can be the best options.
What Can Gen-Xers and Millennials Do?
Planning for Retirement
Many people make the mistake of not planning for retirement due to financial constraints. However, making small contributions early on can have a much greater impact on your long term savings. Younger professionals should take heed of the concerns discussed above, and consider the risks and rewards of other investment options. Always take advantage of retirement benefits offered by your employer and keep up to date on available options. Consider that the need for independent retirement planning will be much higher than previous generations, and take appropriate steps to manage and modify your plan as new information develops.
Trends to Watch
Beware of market changes that cause major upheaval in normal investment patterns, such as the 2008 recession. Be aware that short-term reactions can have long-term effects. In an unfamiliar situation, seeking professional and experienced help can allow you to find a plan that best suits your needs at the time and into the future.
Current predictions estimate that Social Security will be depleted by 2037 unless an effective plan is put in place. Deciding whether or not it is safe to factor this income into your retirement earnings can affect your other investments.
If you want to limit your risk due to outside influence, consider investing in precious metals. Many financial advisors recommend investing around 5% and 15% of your investable assets in gold. This could help you avoid a potential bankruptcy of a stock-issuing company, government default on pension or devaluing of currency.
Considering a Loan
Taking out a loan may be the correct option for you depending on your financial needs. Whether you are a retired Baby Boomer facing unforeseen circumstance or a Millennial who is unable to receive Social Security in the future, considering the correct loan is critical in your time of need. Federal employee loans are available at a variety of rates through LoansForFeds and may provide emergency assistance with lower rates, increased loan amounts and better loan terms than competitors.