The first wave of post-WWII baby boomers are now zooming past the retirement finish line.  The Boomer generation spans about 18 years from 1946 to 1964, the oldest of which are now reaching retirement age.  Now that many of the older Boomers are reaching early retirement age, are they really financially ready to exit the workforce and enter their golden years?  The answer is both yes and no. 

Working Into the Golden Years

In the last two years, from 2007 through the end of 2008, only less than half of eligible Boomers who could take early retirement before the age of 65 did actually fully retire.  According to a study performed by MetLife Mature Market Institute, a Boomer survey response revealed that a majority of those eligible for retirement still work full or part time.  Many of those eligible for retirement found that the economic climate was not yet ripe, and they were determined to remain in the workforce until the economy gets back on track and their retirement accounts receive that little extra “padding” from the continuing work years.

401(k) Plays a Major Role

Of particular interest in the decision to retire early or not was the 401(k) or other retirement account.  In the last two years, and especially in 2008, many retirement savings accounts saw massive drops in value due to the stock market collapse.  About half of the surveyed Boomers expressed that they were behind in their retirement savings, and only a small percentage reported that they had achieved their retirement savings goals.

The Economy Turned Retirement Haywire

In comparing the MetLife 2007 study with the 2008 study, it appears that in 2007, 15% of those who would reach the early retirement age of 62 planned to fully retire.  A year later, only 11% of that small percentage actually did fully retire, while the rest continued to work because of the economy.  These workers were faced with a decision to continue full or part time work due to sudden changes in the economic climate and the value of their retirement savings.  Most of the older generation Boomers say they will now fully retire at age 66.

However, when the same question was asked of the older Boomer generation, their answer was prominently that most will not take early retirement at age 62. Rather, most say they plan to fully retire at age 64.  The sentiment of the younger Boomers is that they have more time to get their retirement accounts in shape and in a position to retire. 

What Nest Eggs are the Boomers Depending On? 

While most retiring Boomer workers will collect Social Security benefits, what are some of the additional retirement savings or investments that Boomers will depend on after retirement?

• 401(k) – About 54% of surveyed Boomers said they have a 401(k) in which they contribute toward their retirement.  

• IRA – Also, about 51% said they have an IRA in addition to, or rather than, a 401(k) retirement savings.

• Defined Pension – Less than half, 49%, said they will have a defined retirement pension from their workplace.

• Stocks, Bonds, Mutual Funds – 40% of those surveyed own stocks, while another 38% have invested in mutual funds.  Fewer, only 27%, own bonds for their retirement plans.

• Annuities – 37% of Boomers have purchased annuities that will pay them a regular retirement income.

As many early generation Boomers are experiencing, economic climates can play a big part in the decision to retire.  A retirement savings plan should include a broad spectrum of financial products that provide growth, while also protecting value in economic downfalls.  Anyone in the Boomer generation nearing retirement should have a good asset management company such as www.iamllc.biz or a wealth manager as www.kenhimmler.com on their side to formulate a solid financial strategy toward retirement. 

Authored by Kenneth Himmler, Sr.

2008 proved to be a tremendous bear market for Wall Street.  With investor confidence at an eight year low and stocks continuing to see loss in value, some 401(k) and IRA accounts have lost upwards of 20% or more of their pre-2008 value.  With these types of losses felt across the board, how can you learn from this experience and work to rebuild your nest egg beginning in 2009?

Don’t Cash Out

Many people who still had 401(k) accounts from an old employer promptly withdrew funds when they saw the continually falling stock market prices.  Unfortunately, choosing to cash out your 401(k) can have a tremendous financial impact on your future retirement income. 

First, withdrawing funds before the agreed retirement age will result in hefty early withdrawal penalties.  Don’t forget that you will owe federal and state taxes at your current tax rate on any increase in value of your fund over the amount you contributed.

Secondly, when one considers the powerful investment vehicle of a 401(k) and the final value of the account at retirement age, it is foolish to pass up the chance to build that wealth.  Even a small $5,000 retirement account can grow to near $75,000 in 40 years.

Wait for the Rebound

If you have retirement income vested in the stock market, it is important to remember that the market always recovers, and in fact, it has demonstrated consistent average growth since 1930.  However, you do need to ask yourself a question about when you plan to retire.  Will it be in 5 years?  20 years?  If have 20 or more years until your retirement age, your 401(k) or IRA will still see the best growth with stock market funds.  However, if you are looking at retirement soon, you may want to consider checking your diversity of investments.

Check Your Diversity

Your retirement accounts for your future retirement income should be invested in diverse areas, such as stocks, mutual funds, bonds, and no-risk investments, such as money market accounts, and CDs.  Never should an individual put all their proverbial eggs in one basket.  For instance, a younger worker, who is 31 years old, may view retirement as a lifetime away and decide to concentrate his IRA or 401(k) funds into aggressive growth stocks, or more specifically, their own company stock.  However, if a tough economic time arrives, like it did in 2008, that 31 year old may see almost his entire fund deflate.

To avoid such massive losses, check to make sure your retirement account has properly diversified investments.  Consult with an asset management company such as iamllc.biz and retirement advice as found on www.kenhimmler.com. Be sure to review your retirement accounts at least once a year and make any necessary changes in order to stay diversified.

Don’t Stop Saving

And finally, don’t stop saving.  Your 401(k) account is the solid foundation of your retirement plan.  Despite the ups and downs of the market, you should not stop your regular contributions for two reasons.  One, your contributions are pre-tax, and therefore, it lowers the actual income tax you pay now.  And two, if you have an employer with a company 401(k) match, take advantage of that free money.  Every penny you withhold for your 401(k) up to about 3% of your earnings can be matched and donated into your account by your employer.   This is essentially “free” money for your retirement account. 

The stock market news can be daunting.  However, remember that the survivors and winners in the long run are those who are mindful and stay in the investment game. 

Authored by Kenneth Himmler, Sr.