4 Reasons Baby Boomers Don’t Know When to Retire
Knowing when to retire isn’t as easy as it once was. For a long time, it was simple.
You started working sometime during your 20s and set money aside until you hit 65. Then, you retired and enjoyed the rest of your life.
However, if Baby Boomers are anything to go by, that’s all changed.
Low-interest rates could stall retirement plans or, at the very least, make it difficult to know when to retire. That’s because these low rates also bring about lower returns on savings.
This can be an absolutely brutal factor to those who have been putting money away from their entire lives, waiting for the day they would finally retire.
Unfortunately, that’s only part of it.
Another reason interest rates make it impossible to know when to retire is because they make these golden years far more expensive.
As soon as you move from earning money and saving it to doing little else but spend it, you’ll be in even more trouble where these interest rates are concerned.
When to retire could change from year to year for many Baby Boomers as interest rates do the same.
Image Source: http://www.tradingeconomics.com/united-states/real-interest-rate-percent-wb-data.html
The vast majority of retirees have very few sources of income too. Many don’t have any and simply live off of their savings.
This position already makes them vulnerable enough. One wrong swing of the market and they could be in serious trouble.
To avoid this dire situation, many baby boomers postpone their plans of retiring to wait until they are surer of the market, interest rates become more favorable, or they have even more saved away.
Inflation Undercuts Their Best Efforts
Another economic factor that makes it almost impossible to know when to retire for Baby Boomers is inflation. In fairness, aside from knowing when to retire, inflation can make a lot of things unnecessarily confusing.
One of the most insidious things about inflation is how it eats away at your savings, so even if all you wanted to do was work hard and squirrel money away, you’d still lose some of it because of this economic force.
Image Source: https://fred.stlouisfed.org/series/CPIAUCSL
As we just talked about above, knowing when to retire may depend on how much you have saved, but you also have to realize that now you’re going to be doing a lot more spending than saving. In fact, you might not be doing any saving at all.
While this is already a problem, rising inflation makes it much worse. That’s because it means that goods and services are going to cost more.
Many Baby Boomers who have already retired have quickly found that they are going to need to cut back on their spending considerably in order to secure a comfortable life for themselves.
When you look at the Consumer Price Index chart above, it should become a lot clearer why Baby Boomers aren’t sure when to retire. If inflation continues steadily in that direction, they’ll need a lot more money than they probably originally thought.
They Put All (or Nearly All) Their Money in Stocks
Traditionally, many people have put the majority of their nest egg into the stock market to make sure it grows before they retire. With the help of a qualified investor, this has long seemed like a no brainer.
The problem is that you’ll never receive a great return on investment. While many knowledgeable investors have posted some version of this or another, it recently saw widespread discussion after Bill Gross of world-renowned Janus Capital lent it some credence when he predicted the end was near.
In short, he sees the last four decades as so unique, so unprecedented, that, “You have a better chance of observing another era like the previous 40-year one on the planet Mars than you do here on good old Earth.”
To Gross, investors and soon-to-be retirees are all making the same mistake in thinking that this extremely prosperous time period will last much longer or even return.
Instead, Gross has said, “But my take from these observations is that this 40-year period of time has been quite remarkable – a grey if not black swan event that cannot be repeated.”
While not every person who’s about to retire subscribes to this theory, of course, it does highlight the problem with trying to pave the road to retirement with stocks. Even the “safest” options can prove to be worrisomely volatile.
They Have Greater Amounts of Debt
There’s a lot to be said for being a Baby Boomer compared to past generations. One especially nice benefit is that they’re living much longer and with greater health than their parents and those who came before them.
However, as it turns out, this may have given them more time to acquire large sums of debt. Gross would also point out that they benefited from some of the best economic times in history, which means they may have taken out more loans.
In any case, back in 1998, 30% of those 65 years of age and above had debt. By 2012, that number hit 44%. Many of them – 24%, to be exact – still have mortgage payments to worry about. That amount was just 16% in 1998. In 2012, the median amount owed by these older adults was $24,500. That’s definitely going to affect when to retire.
Of course, now factor in the above three elements we talked about. Originally, many Baby Boomers may have taken their debt into consideration when they thought about when to retire.
It wasn’t necessarily that big of a burden; it was just another bill to pay in order to enjoy their retirement.
Then came low-interest rates and high inflation. If they were putting all their faith in stocks, they might have even come to the realization that doing so wasn’t a superb idea. Any one of these elements can make any amount of debt a much bigger deal.
Before you assume your retirement plans are set in stone, make sure you do the necessary research to ensure some of the factors we just outlined aren’t going to be a threat.