| WASHINGTON, July 24
WASHINGTON, July 24 Add this to the growing pile
of research that seems designed to scare baby boomers out of
their Birkenstocks. A new study from Bankrate.com and Research
Affiliates, a Newport Beach, California, money management firm,
posits that the postwar generation could be retiring at a most
"The baby boom may end with a whimper," wrote Chris Kahn,
the Bankrate analyst who worked on the study. "Baby boomers may
be leaving ... (the work force) at the worst time in a
generation or more."
The study finds that today's low yields on "safe"
investments like bank deposits, bonds and insurance products may
not provide enough income for the boomers, who are expected to
bust longevity records. The shift from pensions to
employee-funded 401(k)-type accounts further leaves them less
protected than their parents and grandparents.
Let's try for a little perspective, shall we? In the first
place, there have been scarier times for Americans to retire.
Before 1940 there was no Social Security. In 1960 the life
expectancy for women was 73; for men it was 66. So while
retirement may have been sweet, it was short. Until landmark
retirement legislation passed in 1974, the companies that often
required decades of loyalty before benefits were guaranteed, and
then frequently laid off employees just before they were
eligible to collect. In 1980, retirees may have had nice yields,
but they were facing a 13.6 percent inflation rate.
So it's not really the worst time in history to retire - or
even the worst economy in which to retire. (Depression, anyone?)
What it may be is the worst time to depend on bank deposits,
bonds and insurance products to see you through a long
retirement. Here are other strategies to consider.
- Have patience. "Low returns don't persist forever," says
Michael Kitces, research director of the Pinnacle Advisory Group
in Columbia, Maryland, and publisher of the financial planning
Nerd's Eye View blog ().
Those multidecade retirements that everyone keeps telling us
we may enjoy mean that we're likely to live through future
periods of higher yields and multiple stock market cycles.
- Retire when you can afford to, says Sheryl Garrett, a
Shawnee Mission, Kansas, financial adviser. When is that? She
tells clients to do this math: Add 1/25th of your savings to the
amount of Social Security and pension benefits you expect to get
in the first year or retirement. Is the total enough to support
a comfortable lifestyle? Then you're good to go. "If you can
afford to retire, then you shouldn't care about what the
interest rates are at that moment," she says.
- Be smart about spending during the first year of
retirement. Kitces tells retirees that they should aim to "take
withdrawals low enough to be able to wait it out until returns
revert to something more normal." How low? Historically,
advisers have told people to count on the so-called 4 percent
rule: In the first year of retirement, you can withdraw 4
percent of your savings. In subsequent years you can increase
that withdrawal by the rate of inflation - most experts build
that in at about 3 percent a year.
Kahn says some retirement experts are now saying 4 percent
is too high, but Kitces has run the numbers, and the average
withdrawal rate that has sustained retirees throughout history
has been about 6.5 percent. "In other words, the safe withdrawal
rate approach (of 4 percent) already cuts your lifetime spending
by one-third specifically to defend against situations just like
this," he said, referring to the current low-yield environment.
Furthermore, research from fund company T. Rowe Price and
others has shown that many retirees don't increase their
withdrawals by the rate of inflation every year.
- Invest like a young person. If you're going to live for 30
more years, you can take the kinds of investment risks that a
long horizon allows. Consider keeping a higher percentage of
your retirement savings in stocks than is traditional for
retirees - more, say, than the 40 percent that was the old rule
of thumb for a 60-year-old. Look at alternatives to those safe
bonds and bank certificates, too. Garrett is suggesting some
retirees may invest in items like real estate, where they can
collect rents, as well as dividend-paying stocks and preferred
- Slide into retirement. Working part-time for a few years
or developing a new way to make money on the side can ease the
financial and psychological adjustment. Delaying the start of
your Social Security benefits can give you such a big boost (in
the form of higher benefits for life) that it may be worth
taking bigger withdrawals from your investments to forestall
that first benefit check, says Garrett. You can ask your adviser
to run the numbers or use one of the new online Social Security
benefit planners like SocialSecurityChoices.com or
- Save more. Kahn tells boomers to take advantage of the tax
breaks for "catch-up contributions." Those allow anyone 50 or
older to tuck extra money into 401(k) plans, individual
retirement accounts and other retirement plans. Even if this
should turn out to have been a historically great time to have
retired, a little extra cash never hurt anybody.