LTC Bullet:  Boomer Coma

Friday, April 6, 2012

Seattle—

LTC Comment:  Baby boomers are retiring faster and in greater numbers than anyone expected.  What’s more, they’re surprisingly content and confident as they drift blithely into retirement, much more so than America’s economic reality justifies. 

That’s my take away from the latest MetLife Mature Market Institute’s study of the baby boomer cohort.  Find the “Executive Summary” and “Key Findings” of “Transitioning into Retirement:  The MetLife Study of Baby Boomers at 65” below.  Read the whole report here.  For example: 

“Despite the conventional wisdom that Boomers are ready to ‘work forever’ and significantly extend their formal working career, many of the oldest Boomers are already well into the retirement phase.  Almost twice as many 65-year-olds in 2011 stated that they were fully retired as were working full-time at age 65 (45% versus 24% respectively).  The average age at retirement for these Boomers was 59.7 for men and 57.2 for women.” (p. 2)

Evidently, MetLife’s respondents didn’t get the memo about these findings from a May 2011 Bankers Life and Casualty study:

  • “More than half of middle-income Boomers (55%) have saved less than $100,000 for retirement.  One-fifth (19%) have saved less than $10,000.”
  • “Two out of three (68%) middle-income Americans age 47 to 65 have experienced a decline in the value of their retirement accounts since 2008; one-third (30%) of those have not seen any rebound in value as of March 2011.”
  • “One-third (32%) of those surveyed who own a home have already paid off their mortgage; however, close to half (48%) do not expect to have it paid off before they retire.”
  • “Three-quarters (73%) of middle-income Boomers say the turbulent economy has caused their retirement timing expectations to change; seventy-nine percent (79%) of those are delaying their retirement, by five years on average.”
  • “Two out of three (66%) middle-income Americans age 47 to 65 are not receiving professional guidance of any kind regarding their retirement.”

In actuality, baby boomers’ annual savings rates as a percentage of their incomes plummeted from 7.3% in 1988 to .5% in 2007.  (Source)

What accounts for this apparent gap between boomers’ complacency toward early retirement and the hard facts about the generation’s lack of financial preparedness? 

I think the explanation is the same as for the boomers’ denial and naïveté about long-term care risk and cost.  All their lives, they’ve seen their grandparents and parents supported by Social Security, Medicare and Medicaid.  Boomers think they can depend on the social safety net too.  They’re wrong.

The federal government is running massive deficits and borrows over 40% of everything it spends!  How long can that continue?

Social Security warns of dramatic benefit cuts when its trust fund runs out.  But there is nothing in the Social Security trust fund except IOUs; the program already spends more than it collects in payroll taxes; and its unfunded liability is $17 trillion. 

Medicare is a far bigger problem than Social Security.  Its infinite-horizon unfunded liability is $89 trillion and there’s nothing but treasury bonds, more IOUs, in its “trust fund.”  Like Social Security, Medicare already draws down general funds.

Of course, Medicaid, the biggest payer for long-term care—boomers’ greatest financial liability in old age—doesn’t even have a phony trust fund for naïve retirees to pretend they can rely on.  The handwriting’s already on the wall for all three of these insolvent social programs.

Between the long-standing and still-growing entitlement mentality these programs created and the collapsing values of personal responsibility so fully and depressingly documented in Charles Murray’s new book Coming Apart, it’s hard to imagine how the country will get through its imminent encounter with financial reality.

Adam Smith said “There’s a great deal of ruin in a nation.”  That’s why America could muddle through for so long.  But a country can’t defy economic gravity forever, any more than a hot air balloon can remain permanently aloft.  A hard landing is coming, and soon. 

Let’s hope enough boomers awaken from their entitlement-induced financial stupor in time to prevent a crash.  But don’t bet your life on it.  Make sure you and yours are protected with adequate savings and full private insurance protection before you consider retirement.

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Following is an excerpt from “Transitioning into Retirement:  The MetLife Study of Baby Boomers at 65,” MetLife Mature Market Institute, Westport, Connecticut, April 2012, http://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-transitioning-retirement.pdf.

Executive Summary

In 2007, the MetLife Mature Market Institute (the Institute) began conducting a series of studies to better understand the Baby Boomer cohort, those born between 1946 and 1964. The first in this series, Boomers: Ready to Launch, studied Boomers on the cusp of reaching age 62 in 2008. In 2008, the Institute conducted Boomer Bookends: Insights Into the Oldest and Youngest Boomers (released in 2009), a comparative look at Boomers born specifically in 1946 and 1964. For each of these studies, respondents were re-contacted to compare their attitudes and experiences from the previous waves.

In 2010, the Institute released Boomers in the Middle: An In-Depth Look at Americans Born 1952-1958. This study examined the middle cohort of the Baby Boomers, who in some ways tend to favor attitudes and behaviors of either side of the Boomer spectrum.

In 2011, the oldest Boomers reached a new milestone - turning age 65 - an age that traditionally defined retirement. This study examines the attitudes and behaviors of this leading-edge Boomer segment as they transition into their next life stage. Respondents included those who agreed to be re-contacted from the 2009 study, so in many instances, direct comparisons of changes in circumstances, plans, and behavior are included in this report.

The results indicate that much can change in three years, with major changes in employment and retirement status specifically. Despite the conventional wisdom that Boomers are ready to "work forever" and significantly extend their formal working career, many of the oldest Boomers are already well into the retirement phase. Almost twice as many 65-year-olds in 2011 stated that they were fully retired as were working full-time at age 65 (45% versus 24% respectively). The average age at retirement for these Boomers was 59.7 for men and 57.2 for women. A large majority of those who have transitioned into their retirement also report that they are well satisfied with this new stage of their lives.

Of those still working, over one-third anticipated that they will retire within the coming year, when they turn 66 and are eligible for full Social Security retirement benefits. Despite this anticipation, a small minority (15%) are unconvinced of the Social Security program's long-term sustainability, and slightly more (21%) are fully convinced that it will be around. Almost two-thirds (63%) are also currently collecting Social Security retirement benefits. At the same time, of the 65-yearold Boomers who have not retired, many are considering working until even longer than in the past. Consistent with prior studies, major concerns are having adequate finances, staying active and productive, and long-term care costs.

With a large majority of these oldest Boomers without a living parent (76%) and 83% of those with children now also having grandchildren, much of their attention has turned to these younger generations. Of the approximately one in four who have at least one living parent, the incidence and activity of elder care has remained steady at 14%.

The respondents also revealed that concerns about the recession may be waning, although it still clearly concerns many, with 43% expressing optimism about the future (next 25 years). In this regard, 25% relate it to their personal finances and 22% to their health. Of those pessimistic, most attribute this to the government (49%) or the economy (21%).

Although health reasons play a major role in the decision to retire earlier than anticipated, a majority report good health and over two-thirds report no change in their health status. This may be a factor in why the oldest Boomers continue to push back the age at which they view themselves as old, now postponing this declaration until age 79, a full year more than they indicated in 2007.

Key Findings

• Almost one-half (45%) of 65-year-old Boomers are now fully retired (up from 19% in 2008), with another 14% reporting that they are retired but working part-time or seasonally.

• Of those who have not yet retired, 61% plan to retire at the same time as they planned one year ago. On average, Boomers who have not yet retired plan to do so by age 68.5.

• Almost four in 10 respondents (37%) who retired earlier than they had planned, cite health-related reasons for doing so, another 16%cited loss of a job or job opportunities. Those who retired later than they had planned mention needing a salary to pay for day-to-day expenses (27%) and a desire to stay active (13%) as the reasons for delaying retirement.

• The majority of Boomers (63%) have also started receiving Social Security benefits; of those, half started collecting before they had originally planned. Six in 10 Boomers are at least somewhat confident in the ability of Social Security to provide adequate benefits for their lifetime.

• Seven in 10 retirees report liking retirement "a lot" while another two in 10 say they "like it somewhat." The majority of Boomers like the word "retirement" to describe their life stage and feel it is as they expected it to be.

• Half of Boomers feel on track or have achieved their retirement savings goals. Just under half (48%) have consulted a financial advisor in the past 12 months, and six in 10 have calculated their needed monthly income during retirement. An equal percentage of retirees and those who are still working full-time have tried to calculate their monthly income needed in retirement (63% of retirees and 65% of full-time workers).

• Despite current difficult times, more than twice as many Boomers (43%) are optimistic about the future in the long-term than the less than one-fifth who are pessimistic. They are optimistic about their personal finances and their health. Those pessimistic about the future are most concerned about the government and the economy.

• Almost one-quarter of Boomers received an inheritance from their parents with an average value before taxes of $110K.

• Boomers still feel that they are in good health, with 85% reporting excellent, very good, or good general health ratings. Almost two in 10 report being in worse health than they were in 2008. Of those, half have suffered a major health problem in the past three years.

• The Boomers surveyed say on average that they will be old at age 79, a year later than reported in 2007. Nearly one-third (31%) of Boomers think that they were their sharpest mentally in their forties while about one-fifth feel the sharpest now, in their sixties.

• From 2008 to 2011, more Boomers have become grandparents - an increase from 77% to 83%.

• During that same period, the number of respondents who report having neither parent alive increased significantly from 67% in 2008 to 76% in 2011. However, the proportion of Boomers providing care to a relative has remained stable at 14%, providing an average of 11 hours of care on a weekly basis.

• Home ownership increased significantly from 2008, from 85% to 93% of Boomers. The majority of homeowners (83%) do not plan on moving. The average home value reported is $255,000, down slightly from $269,000 reported in 2008.