By Suzanne McGee, MSN MoneyRetiring early isn't what it used to be. With bolder aspirations and more challenging financial situations, a new generation faces different questions as baby boomers prepare to ditch the daily commute. So whether they want to spend their retirement years saving the world or simply traveling around it in their new motor yacht, boomers' financial savvy will spell the difference between success and failure in pursuing their dreams.
What's changed? Two things -- and the first, not surprisingly, boils down to money.
Why boomers aren't saving
"Our parents had pension plans with defined benefits that were adjusted to keep pace with inflation -- they could just take their pensions and get up and go," says Jere Doyle, senior vice president at BNY Mellon, who works with affluent retirees.
But over the last quarter-century, the vast majority of employers have shifted the burden for saving for retirement to their employees, dumping on them all the work and all the headaches involved in building, managing and distributing retirement nest eggs. "Now all the risks are squarely in the laps of the baby boomers," Doyle adds.
The second change is lifestyle. "The reality is that when baby boomers retire, we are going to be relatively young and healthier than any other generation has ever been at this age," says Gail Buckner, retirement specialist at Franklin Templeton in San Mateo, Calif. "We will want to travel, to take up new hobbies or pastimes, perhaps to start a new business. All of these may mean that our cash needs actually rise."
A sweet new chocolate gig
The bigger your retirement dreams are -- or the sooner you want to jump off the career ladder -- the more attention you need to devote to financial planning.
Chart: How long are we living?
Following are six smart tips for retiring not just sooner, but smarter as well.
1. Start as early as possible
The best way to avoid financial traps is to begin planning and saving as early as possible. That boosts the odds that you'll be able to retire whenever the moment feels right, instead of hanging on until the last possible moment or trying to knit together a combination of part-time, post-retirement jobs to bridge the gap between inadequate savings and your financial needs.
Chart: How much can you save?
"The best goal you can have is to target being financially independent as soon as you can manage it, and to forget thinking about having to hit that mark by a certain age," says Carlos Lowenberg Jr., head of the Lowenberg Wealth Management Group in Austin, Texas.
2. Check your lifespan
It's prudent to base your financial calculations on very conservative assumptions. If your parents lived into their 80s, you'll want to make sure your assets will last at least until you turn 90, if not longer.
Calculate your life expectancy
"I'm planning for a retirement that will last until I am 100," proclaims Buckner, whose father died at the age of 93. She figures that rather than lasting 20 years, her retirement years could go on for four decades or so: "So the first question is how you will replace your paycheck for those 30 or 40 years -- and (the answer is to) start saving."
3. Get real
Retirees tend to make similar mistakes in their financial planning, says Buckner –- and one of the most common is the assumption that their income needs will fall 20% or so in the early years of retirement. That may make sense on paper, but not in reality, she explains. For instance, just because the breadwinner isn't heading off to the office daily doesn't mean that suddenly a couple will be able to make do with only one car.
In fact, the opposite often happens, notes Dennis Barba, managing partner of the Oxford Group, a firm affiliated with Raymond James & Associates. Boomers, he says, are eager to enjoy their first few years of leisure by rewarding themselves -- especially those who haven't found tremendous satisfaction from their jobs or careers. Those "rewards" are usually costly, and can take the shape of everything from new tools or equipment for their favorite hobby to a round-the-world cruise.
Calculate your retirement expenses
4. Make your hobbies pay
"I wanted to buy a lot of great ham radio equipment," confesses Brad Goersch, a retired technology executive who moved to Saint Croix in the U.S. Virgin Islands last year with his wife, Donna.
Photo: See Brad's ham radio setup
So to justify the purchase of powerful radios and giant towers on their newly purchased hillside property -- and to generate some extra income -- the couple rent out their ground floor, a self-contained apartment, to fellow ham-radio buffs who travel from as far afield as
Japan and Belarus in order to broadcast from the exotic locale. Barba says that the Goersches are atypical; too few boomers are financially prepared for retirement. "A typical case may be someone with anywhere from three to 10 different retirement accounts at a variety of financial institutions," says the Atlanta-based planner. "They are very busy running their lives and careers and have no idea of what is happening to their retirement savings beyond the fact that they are adding something to it each year."
5. Set a target
The financial services industry has begun to address that problem by introducing an array of new products aimed specifically at baby boomers -- most notably, asset-allocation mutual funds that have become known as "target-date retirement" funds.
The marketing pitch runs as follows: Decide what year you hope to retire, then pick a fund with a date that corresponds most closely to that. So if a 50-year-old hopes to retire in 2018 or so, he or she can choose among four different funds with a 2020 target retirement date that have gotten four- or five-star ratings from the mutual fund analysts at Morningstar.
"These products do make the process of asset allocation simpler, changing and adjusting the risk level over time and reducing the likelihood that investors will be either too aggressive or too conservative with their nest egg," says Brad Levin, president of Legacy Wealth Advisors in Encino, Calif.
6. Taper, don't quit
In reality, few baby boomers are going to transition from work into retirement -- however they define it -- as seamlessly as their parents did. Whether out of desire or necessity, a majority will continue to work in different ways and possibly pursue different careers altogether.
"Work is probably the most important financial lever that boomers will have at their disposal," argues Mark Balasa, founder of Balasa Dinverno Foltz, an Illinois firm that oversees some $1.5 billion in assets for individuals and families.
If a 60-year-old client of his wants to retire, and expects or wants to spend about $10,000 a month, Balasa calculates that he'll need a lump sum of at least $2 million to manage that, based on the assumption that he may live another 30 years. If he's $250,000 or more short of that, simply postponing retirement by two or three years could be enough to meet that goal.
The key, Balasa says, is to postpone the day that baby boomers first must dip into their savings. The more likely they are to outlive their retirement nest eggs, the more crucial that becomes. Even those who have been
downsized or who can't stand the rat race a day longer can accomplish the same thing by taking a part-time job or following the example of Brad and Donna Goersch and finding new ways to generate extra income.
"Sometimes getting there sooner isn't the right thing to do at all," Balasa argues. "Sometimes, getting there later is better both personally and financially."
Produced by Anh Ly / Graphics by Joe Farro
Published June 24, 2008
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