Baby Boomers: Defining a “New Normal” for Retirement

Nov 4th, 2010 | By Sharon Shaw Elrod MSW EdD | Category: Senior Finances

Saving for retirement seems to be mostly a thing of the past. In fact, Baby Boomers and seniors are beginning to realize they need to identify a ‘new normal’ in their lives. Normal used to be saving for retirement. The new normal seems to be something like, ‘…save money if and when you can, and then it’s available for crises and emergencies when (not if) they arise.’  Planning for retirement is getting more and more elusive.

One of the changes in the business world that seriously affected Baby Boomers’ retirement plans was the disappearance of the employer funded pension plan.  That was the plan that employers purchased for their employees, and the plan became ‘vested’ at a certain point in the years of service of the employee.  Then, upon retirement, the employee was guaranteed a certain amount of income every month until her/his death.

Now the only people getting guaranteed pensions are CEOs with golden parachutes, those 1%-2% of the wealthiest Americans who some believe ‘need’ the Bush tax breaks extended.

To be sure, some employers provide a ’match’ for employee-managed 401-K (or 403-B) plans; that is, up to a certain point, employers will match whatever the employee puts in to the plan.  This is a helpful move for employers because they can deduct the amount they contribute on their annual federal tax return.  It also helps the employee because the fund has the potential to grow faster.

Even during the past two years’ recession, workers continued to save about 8% of their income, a good sign of interest in creating a reirement fund and a good sign of hopes for the future. 

However, another phenomenon occurred that is troublesome when the consequences are pondered:  Fidelity Investments reported that in the first quarter of 2010, about 42,000 participants withdrew funds from their retirement plans due to hardship circumstances; in the second quarter, that number skyrocketed to 62,000 withdrawals.  Penalties were paid on those withdrawals, and interest was lost, which suggests they were not made light-heartedly.  The hardships were real.

Workers in America are beginning to lose confidence in their ability to live comfortably in retirement.  The Employee Benefit Research Institute is tracking that loss of confidence; in the past four years, the number of respondents who believe they can manage retirement comfortably fell from 27% to just 16%.   

A new normal that defines retirement is being created, and we may not yet know what it is going to look like.



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