Will youngest boomers go broke?

According to the CIA World Fact Book, the average American will live to be at least 78 years old, with women outliving men by about six years.

Meanwhile, the national Centers for Disease Control and Prevention projects that longer life spans and a generation bubble of aging baby boomers will combine to double the population of Americans 65 years and older during the next 25 years. By 2030, the CDC estimates, there will be 71 million older adults who will account for roughly 20% of the U.S. population.

"People often underestimate their life expectancy," Iwry said. "But more than that, many never focus on or plan for 'longevity risk' -- the 50% chance that they'll outlive the average life expectancy, the 25% chance that they'll outlive it by a lot and the 15% chance that they'll outlive it by a lot more."

"Many people don't plan probabilistically, but life is probabilistic," he added. "We're managing risks here."

Major strains

The S&P report, which calls Americans "dangerously unprepared for retirement," notes that the poor performance of asset markets in recent years is hitting the piggy banks of even those most primed for retirement. The S&P 500 Index, for example, is on track to have its worst decade performance since the Depression.

Indeed, 50% of those surveyed by the AARP said the value of their 401(k) accounts and other investments had dropped over the past 12 months. One-quarter of retirees said their golden-years income had fallen in tandem with interest rates.

"Retiring in a period like this strains assets in the best case, and this is far from the best case," said David Wyss, S&P's chief economist. "If older workers aren't adding to their wealth and if their asset values are falling, the prospects of a comfortable retirement are receding."

At the same time, the prospects of retiring early, or even on time, are dimming. The AARP study found that one-fifth of those who said their stock portfolio is lighter are postponing plans to retire. About 32% of those people are at traditional retirement ages, 55 to 64.

Wyss said he thinks more retirees will look for "bridge" jobs but that such jobs can be hard to find.

Iwry encouraged people to delay retirement -- even by a year -- as a generally painless way to shore up long-term finances.

"Retiring later is not all bad," he said. "People can improve their financial preparedness for retirement fairly dramatically by postponing retirement just a little."

Iwry called the benefits a "three-fer": Each additional year of work adds another year of income, which can add to savings, lessen the number of years without a regular paycheck and generally boost monthly Social Security benefits.

"Many people don't take this 'leveraging effect' into account," Iwry said. "A little deferral of retirement goes a long way financially."

This article was reported and written by Jennifer Waters for MarketWatch.

Published June 13, 2008

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