Market plunge: Another bad turn for boomers
Investors in their 50s and 60s, still recovering from the 2008 crash, are taking it on the chin again.
This post comes from Anna Prior and Alyssa Abkowitz at partner site SmartMoney.
Last week's startling slide -- and today's even bigger Wall Street loss -- are just the latest dose of volatility to puncture their portfolios; not as wild as the 2008 crash -- at least not yet -- but just as sudden and unsettling. And it comes at a time when investors' 401k balances, on average, had only just returned to their pre-crash levels.
If the correction endures, advisers say, it'll be particularly tough for those who are close to retiring, or just recently did so.
"It's very unfair for boomers," says Ray Harrison, who heads up wealth advisory firm Harrison Financial Group in Roseville, Calif., which manages $240 million. Unlike investors under age 50 who still have plenty of time to build up their savings, he explains, boomers in their late 50s and 60s have relatively little time to adjust to losses.
"Those that just retired, wow -- they're hurting," says Harrison.
To prove it, SmartMoney asked the nonprofit Employee Benefit Research Institute to estimate what would happen to future retirees if bonds were to stay at their current, low yields, while equities rose at 6% a year, a more modest rate than historical averages. They found that 56% of late boomers, those approaching retirement age today, would be at risk of running short of money in retirement.
Some advisers who work with boomers think that the psychological toll of the market volatility has become as severe as the financial toll for that demographic. Post continues after video.
Steven Feys, a Poolesville, Md., adviser who oversees about $75 million, says that while his older clients, who can recall bad times like the stagflation of the 1970s, tend to take the long view and expect better times down the road, his boomers are more skeptical; after all, once you factor in the tech crash, in some cases "the market has been down half the time that they've been investing." For exactly that reason, Feys has been conservative over the past several weeks, moving his clients into cash.
Another option for gun-shy boomers who are near retirement, say experts, is buying an income-generating fixed annuity, which allows investors to turn over a lump sum in exchange for guaranteed income payments.
Those annuities have drawbacks, however: Because interest rates are low, the annuity payout rates are not especially generous right now, advisers say; and it's often expensive or even impossible for customers to cash out of fixed annuities if they change their minds.
For those and other reasons, investors should look to put a relatively small portion -- roughly 10% -- of their portfolio in an income annuity, says Drew Denning, vice president of retiree services at Principal Financial Group.
Of course, some bolder advisers continue to see the correction as a buying opportunity, urging boomer clients to confront their fears and seize the opportunity to pick up, say, retiree-friendly dividend paying stocks on the cheap. As for those who hoped to retire within the next, say, 12 to 18 months?
To quote a research note published last week by T. Rowe Price, "they already should be invested in cash or relatively stable investments." Here's hoping they made that move before Thursday's 500-point drop.
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VIDEO ON MSN MONEY
I'll get off my soapbox now and thanks for listening.
Just yesterday I saw on the news that American government is giving 5 billion to starving kids in Africa and the government is telling us the working and retired people of America that the government can’t keep social security going, then why are they giving 5 billion to starving kids in Africa so there’re starving retirees and disabled, and unemployed in America!?
Perhaps there are some people from your generation in government. Therefore, all of your generation is to blame for where we now stand. Maybe your children should curse you as you are cursing us.
This is NOT a generational thing. We are all suffering. How would you like to lose your job one year before you retire and find yourself with no work because no one will hire your old a$$ and you have no money and no health insurance? That is the spot my friend is in. Don't want us to collect the Social Security that we are entitled to because WE PAID INTO IT, along with our employers' matching funds for 40 to 50 years? Maybe you would prefer that we have no retirement money, so we stay and work while your generation goes jobless. Maybe you'd prefer that we stay and work while seated in the manager's chair so that you never get your promotion. THINK ABOUT IT! Our generation paid our parents' SS, so we expect you to pay ours, just like you will expect your children's generation to do the same. That's how this Ponzi scheme works. I don't like it, but that is what the b*st*rds in Washington devised 75 years ago. Why don't you curse that generation too? I'm sure that you will be willing to give up every penny that you paid into Social Security when it is your turn to retire. NOT!
Damn these politicians and the corporations who own them! Due to their irresponsibility, they have us hating each other. And that is exactly what they want.
I am a boomer...
- I worked starting at age 14 (golf caddy & paper delivery)
- I had to pay my own college (I worked vs. student loans)
- at age 24 I bought my 1st house with 20% down --- the mortgage amount of 50K scared the crap out of me so I made double payments (my furniture was limited to some used lawn furniture for the living room, card table for the dining set, 15" black & white tv, no air conditioning, etc. My car was paid in cash.
- by age 30 I had no debt at all --- and was saving approximately 20% of my income
I do not think I caused this problem...
bookworm1949, I hear you.
Boomers are not evil. We bought into the lies our politicians fed us. We bought into the lies the companies we worked for fed us. We believed that if we busted our butts... if we worked hard and saved hard and bought into the American Dream we would be rewarded. We got taken. Over the years our politicians have progressively forgotten who and what they are working for. They have used our government to advance their own agendas for their own profit. They have snuggled up to the big corporations in exchange for big buck donations to keep them in office, cushy jobs after they get out of office, and profits for companies they are attached to (for example, former VP Cheney). Corporations have decided that mega profits trump doing right by the people who work for them and help them make those profits. The CEOs and CFOs and all the rest of the boys making the big bucks at the top keep grabbing. They don't care if the economy tanks because they have enough money to live well, with or without a job. It's the rest of us that suffer. The only way we the people have a chance is the break the bonds between politicians and corporations. Outlaw lobbyists. Severely restrict campaign contributions, especially from companies and groups. Otherwise things are just going to keep on the way they have been.
Just another typical scam by the big money boys.
They lure the small investor into the stock market then stage a sell off that wipes out the small guy.
Remember someone with big bucks is buying up all the stocks being sold cheap.
What this does is keep the small fish working hard and long to recover their losses. If you cannot afford to retire, you cannot start drawing down that company pension!
Wow a lot of negative comments on the Boomer generation.
I'm 64 hopefully will retire at 66-and what have I accomplished?
Military 20 years retired. Getting my military pension and saving it.
College educated 2 degrees, an RN.
Have saved over the years through my 401K (Gasp! Yes I saved).
Upon retirement hopefully- 2 pensions (one military one civilian); apply for Social Security and Medicare; withdraw 4% from my savings account per year.
Published author, like to write fiction.
Other hobbies and interests. Not bored.
Note - while many were bailing from the US I faced the Vietnam conflict head on and eventually became a commissioned officer and stayed in the military.
Paid taxes all these years and tried to do the right thing.
So I really don't want to hear anymore negative comments. All generations have good and bad apples.
A lot of the "Baby Boomers" as you call them fought in Vietnam and paid the ultimate price there with their lives. They deserve whatever social security and benefits they can get.
Speaking of over extending, generation X, Y, Z or whatever it is now have to have all the Apple I-phones, I-pads and a Lexus or Cadillac to feel good about themselves.
Nowadays some kid puts a hat on sideways, hangs his jeans down over his butt, thinks he's a musician and can RAP and you idiots buy a million records or downloads so he can drive a luxury car, live in a McMansion living the good life, if he doesn't OD on drugs, gets his girlfriend knocked up and then kicks her out on the street for the next one in line. The current generation is the generation of EXCESS!
To all the critics of the baby boomers
I lost my mother at age 9
I started working at age 16
At 19 I was sent to vietnam
I payed for my own college thru the GI bill
I have worked all my life,I drive a toyota
dose that sound like i am spoiled,now i sit and watch as the wealthy politicians in washington destroy my retirement thru their greed
almost every American has had to take some kind of reduction in pay or benefits except our politicians. I think all elected officials should also take the same cuts .I know this will not save much but at least our confidence could be restored. more likely they will not even consider this. The tea party politicians have the best medical plan in the world,dose it make you wonder why they want to deny the same to the rest of us.
When are people ever going to wise up - stop investing in 401Ks, stock markets, etc., if you don't have a single clue what you're doing! Keep it simple in a savings account(s). I'm always amazed at how people start complaining and pointing the finger at the government, Wall Street, etc. They did not hold a gun to your heads to put your money in these ventures, did they?
They are giving Americans a grand fleecing!
Of course, this is just my opinion; I could be wrong.
The politicians are baby boomers the CEO of banks are baby boomers. The baby boomers bought houses and 2nd houses, vacation homes, tore good houses down to make their McMansions or took second mortgages out to add on to existing ones they couldn't afford. All this debt, debt, debt and no real money. Got to have BMW's Mercedes, Porsche, Lexus and send your kid to Best University $$$$$$. Everything on debt, debt, debt. Another words all this spending was phony money just for the love of material goods and at the expense of others when it all came crashing down.
Doesn't anyone every have a thought that if you have to get a loan for everything you do that it means you don't have enough money (so you can't have it)? Is this money going to all of a sudden appear as you borrow more and more money as you go deeper and deeper into debt? The pied piper is going to come calling someday and as usual others are going to have to pay for it in many ways.
for983 your assessment is flawed- I have kept debt low and lived within my means. Right now I have a zero balance on my 2 credit cards. Never had a BMW or Mercedes.
Your speculation is quite wild and inaccurate.
Threekinks- takers? Myself I don't consider myself as a taker-served in the military 20 years; an RN thus in a giving profession. Please reconsider before making blanket statements which are not accurate.
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