Boomers good at saving, but not good enough

Monday, April 14, 2003

NEW YORK -- Retirement is starting to loom for the oldest of the baby boom generation, but few of them are prepared for the financial perils of old age, experts say.

The baby boomers are not bad savers, as generations go -- in fact, they're somewhat better than their parents, according to the AARP. However, they need to be even better, because unlike their parents, most don't have pension plans of the old-fashioned kind, where employers save for them.

The oldest boomers were born in 1946, and will reach 65 in 2011.

"Do I think they're ready? Probably not," says Deborah Voso, a financial adviser in Frederick, Md. At 53, she's a boomer herself.

Voso sees older boomers paying more attention to retirement savings now that their kids are through with college, but the catastrophic stock market of the last few years has scared many away from what historically has been one of the best ways of saving.

Living within means

However, the stock market might not have affected total net worth for the generation as much as one might think.

Howard Shapiro, a 57-year-old flooring consultant for Home Depot, says he "took a hit" in the market, but he's reasonably confident he and his wife can maintain their lifestyle past 65.

"I'm not going to be living a flamboyant life. We live well within our means, and we have more money than we really need," says Shapiro, of Pembroke Pines, Fla.

About six in 10 boomers owned stocks in 2001, according to an AARP analysis of the latest available government figures. Of those who did own stock, the median holding was $39,000.

By comparison, seven of 10 boomers owned a home, with a median value of $130,000.

John Rother, the AARP's director of policy and strategy, said the stock market's fall since then will have pulled boomers' net worth down a little, but the rise in real estate values will have gone a long way toward compensating them for their losses.

"For the group that reads The Wall Street Journal, the swings in the stock market are very important. For the vast majority of the people, they're not," he said.

Including home equity, the median net worth of baby boomers was about $107,000 in 2001.

Experts debate whether to include home equity in retirement savings. A lot of people may balk at taking a home equity loan. But William Gale at the Brookings Institute notes that boomers have been eager to cash in their equity in previous lending booms.

"It suggests that whatever housing equity they have, they might be more willing to cash in," he said.

Voso says borrowing against the house to finance retirement should be seen as a last resort.

Divided into thirds

Even if the baby boomers as a whole aren't saving enough, that doesn't mean most face a difficult retirement.

"I don't think we have this whole generation headed for retirement that's going to be a problem," Gale said. He sees it more as being a problem of the distribution of wealth within the generation.

"A third are doing very well and a third are doing very poorly, he said. "And then we have the third in the middle that seems to be doing well," but may find their funds running short in retirement.

For many Social Security will continue to be an important safety net. It now provides about 40 percent of total retirement income, according to the AARP.

Of course, the Social Security trust fund is projected to run dry in 2042, when the youngest boomers will be 78 years old. The system is likely to be changed long before then, potentially affecting benefits.

The AARP estimates that four in 10 people fall under the federal poverty line at some time after they turn 60. In 2002, the poverty line was $10,874 a year for a two-person household.

According to the AARP's figures, the 20 percent of boomers who earn the least have a median net worth of $7,000, compared with $555,000 in the 20 percent with the highest earnings. And those who have the least money stashed away are also the least likely to have an employer-provided pension-plan.

Julia Margolin, in Urban Dale, Iowa, sees little cause for concern. She and her husband, 43 and 47 respectively, are among the younger of the boom generation and still have time to add to their savings. She will have a pension from working as a teacher for 17 years, and her husband is a partner in a law firm. Still, her conscience tells her they should sit down and draw up a plan for retirement.

"I know we should. But it still seems so far away," she said.

Voso says many of her baby boomer clients are planning to keep working in one form or another after 65, traditionally seen as the magic boundary for retirement.

"They're realistic in thinking that after career No. 1, there'll be a career No. 2," she said.

Shapiro wants to keep working not so much from need, but to keep his "mind oiled." He's worked all his life "on his hands and knees" as a flooring contractor, and is not going to let retirement stop him.

"I can pick and chose any job I want in the industry. I'll always be active," he said.

On the Net

AARP's Beyond 50 report on economic security:

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