Help Boomers Become the ‘Comeback Kids’ of Retirement
Super Bowl LI was remarkable for the winning team overcoming the biggest deficit in the championship game’s 50-year history. The Patriots, led by quarterback Tom Brady, stunned the Falcons to come back from being 25 points behind, force overtime and eventually win, 34-28.
It’s a lesson and an example for many baby boomers who need to play catch-up in the retirement savings game. The Insured Retirement Institute estimates that more than 35,000 boomers – nearly half -- have no retirement savings.1
It’s easy for many boomers to become discouraged. Instead of trying to get back in the game, they may be tempted to toss in the towel and let fate takes it course. As a financial advisor, you can coach them about playing catch-up and help them avoid a much more difficult old age.
There are plenty of coaching opportunities available. While 65 is the traditional retirement age, eight in 10 boomers say they plan to delay retirement, the Employee Benefits Research Institute reports, and one in 10 say they expect to never retire.2
Fortunately, there is a playbook of available options that may help boomers get back in the retirement savings game:
Maximize deferrals. Workers who have access to a 401(k) or other defined contribution plan can save up to $18,000 annually. Even over a short time, those savings can quickly add up, especially with positive investment returns.
Use the catch-up provision. Those who are age 50 or older – this applies to all boomers whether they want to admit it or not -- can save an additional $6,000 annually in a defined contribution plan for a total of $24,000.
Take advantage of any employer match. While not all employers match employee contributions, many do. If a boomer cannot afford to contribute the maximum or close to it, he or she should consider saving enough to secure the available maximum in matching contributions.
Save pre-tax. Contributing pre-tax dollars to a 401(k) or similar plan can reduce the saver’s taxable income. Doing so can help free up additional dollars for savings in another vehicle such as an IRA, mutual fund, annuity or other financial vehicle.
Work longer. Many boomers have already come to the conclusion that they will need to work longer. The good news is that many boomers may be in demand, especially those with hard-to-replace skills. The U.S. economy is expected to face a shortage of five million workers with the necessary education and training by 2020, according to a study from researchers at Georgetown University.3
Put off taking Social Security. Postponing Social Security at age 65 or later can boost future payments by 8 percent for every year the income is deferred until age 70, the Social Security Administration reports4. Few investment strategies net such a return, never mind one with a guarantee.
Work in retirement. More than one-third of people who retired within the past five years say that employment is a current source of income, according to research by MassMutual in 2014.5 While the number of people who worked in retirement declines with age, one in five of those who retired 10-15 years ago say they continue to work.
The key to successfully implementing any or all of these strategies is not panicking, focusing on what can be controlled, and staying with it. Football aficionados will recognize it as the old three yards and a cloud of dust offense.
It’s exactly what the Patriots did when they suddenly found themselves way behind in the third quarter of the Super Bowl. They kept their wits about them, made the most of the time they had left, and executed their strategy.
Meanwhile, Tom Brady plans to continue working long past the age when most quarterbacks have retired from the game. He’s won five Super Bowls and wants more before he hangs up his cleats. It’s a lesson for boomers: it’s never too late to get in the game or, more precisely, to stay in it.
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E. Thomas Foster Jr. is Assistant Vice President, Strategy and Relationships, for Workplace Solutions, a division of Massachusetts Mutual Life Insurance Co.
2Employee Benefit Research Institute, the 2015 Retirement Confidence Survey, http://www.ebri.org/pdf/briefspdf/EBRI_IB_413_Apr15_RCS-2015.pdf
3Georgetown University, New Study Finds There Will Be 55 Million Job Openings By 2020, https://cew.georgetown.edu/wp-content/uploads/2014/11/Recovery2020.Press-Release.pdf
4Social Security, Delayed Retirement, https://www.ssa.gov/planners/retire/1943-delay.html
5MassMutual, Hopes, Fears and Reality, 2014, https://wwwrs.massmutual.com/rsstaticfiles/retire/pdffolder/rs5853.pdf