The baby “bummer” generation may experience a better rate of saving in the future marked by a greater wealth-to-income ratio, but even after exhausting all options including home equity, may run out of money in retirement, writes a recent research report from Bank of America Merril Lynch.
“A look at the household balance sheet underscores the case for an up trend in saving. The stock and housing market collapse in 2008-09 came at a tough time for the baby boom generation,” the report states. “As boomers move past the college tuition years and approach retirement, the wealth-to-income ratio for the nation as a whole should be on a sharp upward track.”
At a time when baby boomers should have been saving, however, they were running in place due to the recession, BAML writes, leaving a “dire” situation for many retirees. The report cites data from Center for Retirement Research, indicating that retirement preparedness among those who are planning to retire, rising from 30% unprepared in the 1980s to more than 50% in 2010, the most recent year for which data is available.
Even exhausting home equity options through a reverse mortgage may not resolve the full problem.
“…even if all households work until age 65, annuitize all their financial assets and put the maximum allowable reverse mortgage on their house (leaving virtually no assets for the next generation), more than half are still at risk of not being able to maintain their living standard in retirement,” the report states.
Written by Elizabeth Ecker