Unless they take action, many baby boomers are heading for a senior bust.
Many of the boomers we know have not saved sufficiently for retirement. Spooked by the last two bear markets, they took their money out of the stock market, selling off when the market was near its low point. Now they’re looking for the high returns necessary to produce the income they’ll need when they retire – yet they also want to avoid risk.
Unfortunately for risk-averse investors, there is an inverse relationship between risk and reward. Investments that offer the potential for high returns usually also carry high risk. Many investors who need high returns are keeping their money in money market funds or certificates of deposit, which carry almost no risk, but offer returns that fail to keep pace with inflation, let alone provide a real return.
While the investment outlook is admittedly tough for shell-shocked boomers, there are many reasons doing nothing should not be an option.
Don’t Count On Inheritance
Back in the 1990s, many were predicting that baby boomers would inherit trillions of dollars. A study by Cornell University, for example, famously predicted that boomers would inherit $10.4 trillion. And in those days, $1 trillion was still a rarely considered sum of money.
Yet it appears that the reality will be far more modest. Parents of boomers are living longer, their healthcare costs are more expensive than predicted and they’ve also suffered through the same bear markets as their children. Their inheritance, in many cases, is gone – and they may even be relying on their children for help.
A recent study by the American Association of Retired Persons (AARP) found that only about one in five boomer households has received an inheritance and only 15 percent of remaining boomers still expect to receive one. Of those who received an inheritance, the median value has been about $64,000 – nice to have, but not enough to sustain another generation during retirement.
Boomers face other problems, too, which we will discuss in our next article.