3 Retirement Savings Mistakes Made By Baby Boomers
Some of us baby boomers have failed to effectively plan ahead for retirement.
Baby Boomers have accomplished great things, but some of us have failed to effectively plan ahead for retirement. But don’t worry. It’s not entirely our fault. After all, we were born into a generation that promised us a better life than our parents. We have Medicare and old age pensions and we were led to believe that the economy would only get stronger, year after year. Were these pipe dreams and false promises? Or just our luck of the draw?
It’s too late now to cry over spilled milk. Our generation has seen more economic recessions than in any other previous generation in our nation’s history, including those who lived during the Great Depression. It seems as if we would get on track financially just in time for the next economic disaster to hit. Then we had to start the recovery process all over again. And here we Baby Boomers sit, on the threshold of retirement, wondering what future economic crises will be hitting us next, once we quit working and try to enjoy our golden years.
Here are the three most common mistakes in financial planning that members of our generation most often seem to make.
1. Not saving enough money
Well, of course this is reason number 1. In our parents’ day, they had pension plans. Dad went to work for a company for 25 years, a company that increased in profitability, more or less, throughout that entire period of time. Companies that rarely went bankrupt overnight. Companies that did not even know what the words “downsizing” or “outsourcing” meant. ompanies that were solid forever it seemed. When you combined the monthly pension with a healthy old age pension, everyone was happy.
Today, pensions are all but gone, and future of increases in old age pension looks pretty bleak. Baby Boomers learned too late in the game that we are most likely going to have to fend for ourselves when it comes to our retirement years. As we begin to approach that magic age of 65, we need to consider socking away as much money into our RRSP’s and savings accounts as possible to make up for all those earlier years when we were under the false impression that our future would be as rosy as our parents’.
2. Spending too much too soon
When we first retire, we look into our savings and perhaps see a whopping $500,000. That’s a half million bucks! But did you know that there is a 50% chance that either you or your spouse is going to live to the ripe, old age of 92 years old? That’s almost 30 years that you will need to make that half mil last. Do you have a plan? Do you have a budget?
A good rule of thumb for Baby Boomers is to guarantee a sufficient monthly income by purchasing an annuity and spend only 4% of the total investing. But you can’t be sure. And you have no idea what is coming around the next corner when it comes to the global economy.
3. Not taking risks
Yes, the stock market has been a rollercoaster ride for the past 10 years. Today it is actually at an all-time high, but just a couple of years ago it was at an all-time low. Nothing is for sure when it comes to the stock market. Which is why some retirees become scared, throwing all of their investment income into GIC’s where the interest is 100% taxable.
Now, GIC’s only get you a return of about 1% per year, 2% tops. But if you want a guaranteed higher income, you should consider annuities. They will last as long as you do.
Most financial investors will recommend that a healthy portion, not all, should be placed into some other more aggressive type of investment strategy, either stocks, money market accounts or mutual funds. In fact, that 4% can be stored in one of those money markets until you plan on spending it. Yes, we Baby Boomers have been hit with some drastic mood swings in the economy over our lifetimes, but we can’t get complacent. We still need to take risks and not live in fear.