A recent Businessweek article painted a scary picture of the dim future awaiting Baby Boomers as they near retirement. In essence, they're generally facing large, structural problems such as:
- The social safety net (Social Security and Medicare) struggling under growing deficits;
- Mortgage and housing woes just as they planned to tap their equity;
- Investment nest eggs that may not be enough and are still exposed to market risk; and
- Being stuck as the sandwich generation, helping both their parents and their kids.
And with the earliest-born Boomers already hitting standard retirement age now, time is rapidly running out for them to make drastic changes to shore up their futures.
Can they do anything about it?
While their near term futures might not live up to most Boomers' liking, there are steps they can take to put themselves in a better spot. They may not be the most fun choices, but they are a darn sight better than running out of money and trying to find work at age 80 after having left the workforce 15 years prior.
For one thing, they can work a few more years. That not only gives their existing nest eggs more time to grow but also lets them add even more money to help them get through retirement. Plus, Social Security pays benefits based on a person's 35 highest income years and will add more to those checks if a recipient waits past standard retirement age before collecting. And of course, the older you are when you retire, the shorter the time frame your retirement plan needs to cover.
And, while Social Security may be starting its inevitable collapse, nobody is seriously expecting its trust fund to run out of money before 2037 or so, well after the Boomers retire. So while we Gen-Xers may not be able to count on Social Security, most Boomers should still be covered.
In addition, that extra time can give Boomers a chance to better diversify their portfolios without necessarily selling investments they still want to own. For instance, you may well have invested in an S&P index fund like SPDR Trust (NYSE: SPY) over the course of your career. There's nothing prohibiting you from holding that fund while putting new money in other assets.
For instance, investing new money into the iShares Barclays TIPS Bond ETF (NYSE: TIP) can help protect against future inflation. Buying into the Vanguard REIT Index ETF (NYSE: VNQ) fund can get you better current income from real estate investment trusts than many stocks offer. And while long term bonds will face serious headwinds if rates rise, there's far less rate-related principal risk in a short-term bond fund like Vanguard Short Term Bond ETF (NYSE: BSV).
By better diversifying their portfolio across asset classes with new investments as they continue to sock away money for their retirement, Boomers can both grow and protect their nest eggs.
Give the kids a nudge
With job creation still weak, now's not a great time for Boomers to kick their adult kids out of the house. But what's wrong with making those same adult children cover their own costs of living there? Surely the utility and food costs are higher with more bodies around. And any help that comes from rent, utility, or food payments from their live-in adult kids can help those Boomers pay down their remaining mortgages all that much faster.
While traditional career roles may still be hard to find, there are classic entry-level spots at places like Wal-Mart (NYSE: WMT), Starbucks (Nasdaq: SBUX), and McDonald's (NYSE: MCD). Not only do all three of those companies have decent histories of promoting from within, but they all also offer their employees investments in company stock, as well.
From an external investors' perspective, it might seem counterproductive to encourage (or even subsidize) employees owning shares in the company. After all, that essentially hands part of those investors' returns over to employees, in addition to the salaries and benefits employees earn. Surprisingly, though, studies suggest a strong employee ownership culture create better corporate economic returns.
Even outside the hallowed halls of academia, those studies seem to ring true. When you look at the cold, hard facts, Wal-Mart, McDonald's, and Starbucks all companies rank among the strongest in their industries in terms of returns on equity and net profit margins. Those results should make even the coldest-hearted investor tear up with joy. It looks like there really is value created in aligning employees' interests with those of shareholders.
From an employee's perspective, entry level jobs at those companies may not match many adults' ideas of a dream career. Still, many other employers would much rather see the initiative associated with working rather than long, unexplained resume gaps.
What's the alternative?
As that Businessweek article pointed out, the future of retirement looks pretty grim for Boomers who haven't aggressively prepared for it. And even for those that have prepared, the future may not be clear. After all, the unexpected curveballs of the housing market's woes, still being the sandwich generation, and the stock market's continued gyrations have conspired to add significant uncertainty.
By making choices that may seem tough now, most Boomers can still salvage a fairly decent retirement. But without taking the appropriate course corrections now, uncertainty and risk will likely be their constant companions throughout what should be their golden years.
Got any other financial tips to help struggling boomers prepare for their pending retirements? Make your suggestions in the comment box, below.
