Salient to Investors:

Baby boomers are retiring at the worst time in a generation or more, as bond yields and stock dividends have tumbled to 2 percent, and the cohort never saved like their parents and grandparents. Pension plans have largely disappeared from the private sector, home values are the same as 10 years ago, and Medicare is a perennial target of budget cutters in Congress.

David Blanchett at Morningstar Investment Mgmt said it will cost more to retire and retirees face more risks today than in past generations. Blanchett said that in 1990 an annuity guaranteeing a lifetime income for a 65-year-old man required an investment of $9 for every $1 it paid back, versus $15 for every dollar in 2010.

Research Affiliates said someone retiring in 1980 with $355,000 in 60 percent stocks and 40 percent bonds would have received an average annual return of 6.9 percent over 30 years. Withdrawing 4 percent every yea, the portfolio would still have grown to $1.3 million by 2010. That portfolio today would run out of money in 25 years; sooner if inflation and interest rates rise as they did from the 1960s to the early 1980s.

Jack VanDerhei at the Employee Benefit Research Institute said a sudden hospitalization or extended stay in a nursing home will take down most couples and make them short on money. VanDerhei says the growing gap between what people are saving for retirement and what they actually need, including income to pay for uninsured health care costs, grew from $4.6 trillion in 2010 to $4.8 trillion in 2012.

The Bureau of Economic Analysis said the personal savings rate has been on the decline for the past 30 years: to 4 percent of disposable income today versus more than double that in the 1970s and 1980s.

Chris Brightman at Research Affiliates said the baby boom generation spent almost entirely what they earned during their peak earning years, and face 30 years of retirement and a drop-off in lifestyle.


  • Retire a few years later. The Center for Retirement Research at Boston College estimates that 65-year-olds will need to stay at work for another 5 years to ensure a successful retirement.
  • Take advantage of catch-up contributions.
  • Diversify away from the same low-risk investments that everyone else is chasing. Blanchett says to invest beyond stocks and bonds and add REITs and commodities and foreign bonds.
  • Talk to your kids, they may have to take care of you.
  • Get financial professional help in deciding on whether to retire

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