What It Means to Be a Baby Boomer

With the oldest baby boomers turning 60 this year, the retirement landscape is about to undergo a seismic shift.

What does it mean to be a baby boomer? First, there's demographics: 26.5 million leading-edge boomers, those born between 1946 and 1952, will turn 60 over the next six years. Trailing them? Another 50.5 million younger boomers.

Then there's longevity. In 1990, according to the U.S. Census Bureau, 37,000 Americans were 100 or older. By 2002, the number had climbed to 74,000 and it will jump further still.

Now, the crunch. Most Americans, according to retirement expert Briggs A. Matsko, a Certified Financial Planner Practitionertm with Lincoln Financial Advisors in Sacramento, Calif., may be under-prepared for what lies ahead.

As Matsko puts it, Much of learning comes from history, but this is uncharted territory. We've never had this many people in retirement in the U.S. at one time. And, sadly, the majority of boomers may not be prepared economically or psychologically. It is important to plan because there may not be a second chance.

When accumulating assets for retirement, you can monitor how you are doing and make changes during that time. Many people spend the last decade that they work in a `sprint' to retirement, saving as much as they can. However, in the distribution phase it is more difficult to make these adjustments, and once you run out of money, there is no reversing that. This is what I mean by there is no second chance.

The Economic Landscape
Here are some of the dominant trends in play right now:

• Many more Americans will be supporting both a child and a parent. These people have been labeled as the sandwich generation because they are supporting both older and younger people.
• Boomers have a 'high lifestyle,' Matsko says. 'Look, they want to drink $40 bottles of wine. They like to go out to eat. They like second homes and they like toys,' he notes. 'Yet many boomers don't have a defined benefit plan or may not be able to rely on one at retirement.'
• More than two-thirds of boomers don't know how to categorize their expenses in retirement, according to a 2004 industry study. One common fallacy, according to Matsko: People generally have the wrong idea about an annual withdrawal rate putting it at 8% or 10% of savings, when 4% is the projected accepted norm. 'A lot of ideas of how they should withdraw money are skewed,' he adds. 'They're going to find out they're not in as good of shape as they thought.'
• With Social Security and pensions under siege, he says, many Americans are beginning to realize they are going to be responsible for funding their own retirement. The downside, he adds, is that most boomers may be ill-equipped to manage their assets. Even those boomers who can and want to manage their money might be able to do so in their 60s and 70s, but what about in their 80s and 90s? Are they still going to have the capacity to make crucial decisions?

Matsko, himself a boomer, has counseled thousands of retirees. His top three goals are: an income stream one cannot outlive, particularly for core expenses; creating a hedge against inflation; and establishing efficient means to transfer wealth to heirs or charities in the event of premature death.

'The conversation has changed,' says Matsko. 'How we're counseling people is that retirement is no longer a black-and-white issue. It's now a thousand shades of gray. Retirement isn't about jumping in up to your neck. It's about wading in up to your knees or waist.'

As an example, boomer's healthier and living longer than previous generations & are beginning to work in creative ways after so-called retirement.

'Instead of working at a magazine, you're at home freelancing. Instead of being a hospital administrator, you're consulting. Maybe you decide to start an Internet business or lend years of management experience to a nonprofit organization,' he adds. 'By staying engaged, it's not only good mentally and emotionally, it's healthy from an economic standpoint. Working a minimum of four to five years past retirement takes tremendous economic pressure off of the situation.'

Funding Retirement
To help clients better understand their income needs, Matsko has developed something he calls The Matsko Method', a Retirement Income Matrix shaped like a pyramid that outlines four levels of expenses and how they should be funded or linked to income sources.

At the base are Core expenses of food, clothing, housing, transportation, insurance and taxes. The income sources: employer pension, Social Security and 'personal pension annuities' (nonqualified annuities). 'As long as you have money for these expenses, you will always have your financial independence, economic freedom and dignity,' Matsko says. 'You want to link these expenses with income sources that you cannot outlive.'

Next are Joy expenses like travel, hobbies and entertainment, which should be supported by dividends and interest from existing capital. After that: Accumulation goals that could include college tuition for a grandchild, a second home or a boat. Those are expenses that generally require the sale of capital assets. Last, there is Wealth Transition to heirs and charities, funded by the remaining assets and insurance proceeds.

'As planners, we get too caught up in numbers and spreadsheets instead of looking at what clients really want. It's really about life first, money second. Part of the planner's responsibility is not just economic advice but actually doing life planning,' says Matsko.

'My objective isn't to scare clients, but to give them solutions. Those solutions are not just economic, but they are psychological as well. What's important is that they realize retirement is not a black-and-white issue.' There is a myriad of options from which to choose. People just need help crystallizing their vision of retirement and understanding the various options that are available. This is where the planner brings true value.

Talk to Your Planner About:

• What percentage you can withdraw from your retirement savings.
• Whether you are on track to meet your retirement goals.
• How to categorize your expenses and link them to income sources.

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