What Do Baby Boomers Need to Recover?

NewImage.jpgBaby Boomers are “exhausted and emotionally frustrated with Wall Street.” As a result, “they are doing nothing and will not be able to retire,” Frank Troise from the company SoHo Asset Management told CNBC last week.

Boomers were initially advised that they would see an 8 percent return in the market over 20 years. So, they built in this expectation for the long term.

When the financial crisis hit they were devastated by the crushing blows to their 401ks—the average loss to 401ks, 24.3 percent.

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In order for Boomers to get back to their target goal of 8 percent and still be able to retire by age 65, the investor needs to recover the money that was lost. For example: An investor who is 40 years old and lost 30 percent of their 401k will now need an annual rate of return of 9.55 percent (per year) until they reach 65 years old. (See the graph for full breakdown.)

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Yet, another reason why baby boomers will need to rely on reverse mortgages in order to live comfortably during retirement.

Baby Boomers’ Game Plan for Retirement

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  • Mr. Troise is absolutely right in much he shares in this short video. It is worthwhile watching. Every babyboomer concerned about retirement should watch it.

    The trouble right now is not only were 401(k) participants banking on an unrealistic average annual return rate but worse so also were the trustees of far too many multiemployer and state and local government defined benefit plans. The state of California is in deep trouble over the aggressive return rates that were assumed in labor negotations. With specific monthly retirement benefits already agreed to if the actual investment returns are lower than the assumed return rates, employers (including taxpayers directly or through the PBGC) will be stuck with making up the difference.

    Unless economic trends turn around and take a steep increase for a sustained period of time, babyboomers are in for a rude awakening. While this most certainly was not the Great Depression, with fewer workers per retiree and reduced economic expectations, the lingering results of this last recession could be distressful (perhaps even devastating) for most babyboomer retirees for decades to come.

    • Baby Boomers who work in the private sector will work past their “normal” retirement age in order to help support their retired public-sector friends…

  • Mr. Troise is absolutely right in much he shares in this short video. It is worthwhile watching. Every babyboomer concerned about retirement should watch it.

    The trouble right now is not only were 401(k) participants banking on an unrealistic average annual return rate but worse so also were the trustees of far too many multiemployer and state and local government defined benefit plans. The state of California is in deep trouble over the aggressive return rates that were assumed in labor negotations. With specific monthly retirement benefits already agreed to if the actual investment returns are lower than the assumed return rates, employers (including taxpayers directly or through the PBGC) will be stuck with making up the difference.

    Unless economic trends turn around and take a steep increase for a sustained period of time, babyboomers are in for a rude awakening. While this most certainly was not the Great Depression, with fewer workers per retiree and reduced economic expectations, the lingering results of this last recession could be distressful (perhaps even devastating) for most babyboomer retirees for decades to come.

  • For the majority of Boomers 60+ years old who lost 30 or more percent of their planned retirement savings, you are basically saying they are screwed. As a member of this group, you are not telling us anything we haven't already concluded. No one is coming to our rescue – we are looking out for ourselves by revising retirement plans, walking away from upside-down mortgages when necessary and learning to stretch our retirement dollars. Comfortable retirement is still possible, but scaled back to conform to our new reality.

    • Mr. Kernek,

      The problem is in so many industries including the mortgage industry the prudent business rules of prior generations (but not all) seemed to fade into oblivion over the last 12 -14 years. Many of the expectations we held in that period were built on sand including appreciation assumptions.

      Now we see some going in the opposite direction, becoming overly pessimistic. The prudent business man standards were stretched to such an extent that they have seemed to have lost their elasticity. Mortgage lending standards, investment earnings assumptions, economic growth, and so many other basic rules, standards, and assumptions seemed to crater in this last recession due to pushing them to their limits and beyond.

      Simply changing laws and adding new rules will not solve the problems. It is time to face the harsh realities of where we have come and readjust our thinking. Sometimes just realizing how unrealistic our prior dreams were can help move us forward. It certainly is not the end but rather a time for a new beginning.

  • This boomer has lost 40 percent of his wealth (mostly real estate and the value of a certain reverse mortgage business) and probably will extend his working career by 10 years.

  • Thank you all for your good comments regarding the segment. We are soon publishing a book on this and have a page and group on Facebook with updates called “Expectational Bankruptcy”

  • Thank you all for your good comments regarding the segment. We are soon publishing a book on this and have a page and group on Facebook with updates called “Expectational Bankruptcy”rn

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