retirement

Retirement of baby boomers at risk

"That's what's going to take down most couples and make them short on money," VanDerhei says.

EBRI estimates that there's a growing gap between what people are saving for retirement and what they actually need. VanDerhei says that the gap, which includes income to pay for uninsured health care costs, amounted to $4.6 trillion in 2010. Last year, it grew to $4.8 trillion.

Who's to blame?

The Federal Reserve is taking a lot of heat for squeezing yields to next to nothing, and for good reason. The Fed has pumped billions of dollars into aggressive bond-buying programs meant to push interest rates lower and, hopefully, stimulate the economy. But by doing so, bond yields have dropped, penalizing savers.

Baby boomers also must share some of the blame for a general lack of retirement preparation. The personal savings rate has been on the decline for the past 30 years, according to Bureau of Economic Analysis statistics. Americans are currently saving roughly 4 cents on the dollar of disposable income. That's less than half of what they were saving in the 1970s and 1980s.

"We have a baby boom generation that spent almost entirely what they earned during their peak earning years," says Chris Brightman, head of investment management at Research Affiliates, who analyzed data for Bankrate regarding the retirement of baby boomers.

"Now they're looking forward to 30 years of retirement and expecting to earn from their investment portfolio enough to live a similar lifestyle with no drop-off," he says. "But that cannot happen."

What to do?

The retirement of baby boomers can be salvaged. They still have a lot of ways to bolster their savings, especially for those willing to put in some effort and get a little creative. Here are a few suggestions:

  • Don't punch out just yet. If you can hang on to your job for a few years longer, you'll save more money toward retirement. You'll also get higher Social Security benefits. And yields may improve enough to generate a better return. "It's infinitely easier to work a couple more years into 65, 66, 67, than to basically retire at 65 and find out when you're 70 or 75 that you don't have enough money and then try to get back in the labor force at that time," VanDerhei says. The Center for Retirement Research at Boston College estimates that 65-year-olds will need to stay at work for another five years to ensure a successful retirement.
  • Take advantage of catch-up contributions. People age 50 and older can contribute as much as $23,000 in a defined contribution plan, such as a 401(k), and $6,500 in an individual retirement account.
  • Diversify your assets. Don't buy the same low-risk investments that everyone else is chasing. "You have to start thinking about moving beyond stocks and bonds," Blanchett says. "Build a more diversified portfolio that has (real estate investment trusts) and commodities and foreign bonds."
  • Talk to your kids. Tell them how you're doing. "That's an important conversation you need to have," Blanchett says. "If you're not ready for retirement, and you retire, and then things go poorly, you're probably going to need to have your kids take care of you. That's expensive for your kids, and it creates a lot of potential family issues, too."
  • Get some expert help. "Unless you have a tremendous amount of financial acumen, you shouldn't decide on whether to retire unless you have some type of financial professional audit your circumstances and tell you you're going to be OK," VanDerhei says.

Bottom line, it's not a time to be passive. Navigating a risky, high-cost, low-yield world will take a tremendous amount of effort. Over their final few decades, boomers will need to draw on the same traits -- flexibility, creativity and determination -- that have characterized their generation.

After all, their toughest challenge still may be in front of them.

"Baby boomers are going to work longer than they'd originally expected," Brightman says. "They're going to have to save more than they'd planned. And they're going to have to consume more modestly in retirement."

Maximize your 401(k), and retire in style No matter where you are in your career, be sure to make the most of your workplace retirement plan.

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