The Boomers Are Coming: Strategies For Planners
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If someone dressed up like Paul Revere on horseback and galloped down the halls of most financial planning companies shouting, "The baby boomers are coming," a security guard might be called, but few would notice the message.
Boomers are the most chronicled generation that most of us can recall. Their impact on everything from fashion to financial planning has been discussed ad nauseam. In fact, most of us take the size of the boomer generation as a fact of life and have little reaction to it.
But consider just two factors: First, boomers (almost 80 million strong) are about to reach traditional retirement age and yet the next generation is about half as big.
Second, the Social Security program has always been a pay-as-you-go program. This means active workers pay for those receiving benefits. That mismatch already has pressed the system into program changes such as delaying benefits (a full retirement benefit for someone born in 1947 is age 66) and increasing taxes (the wage base is $87,000 in 2003 and up to 85% of benefits are now subject to income taxes).
The ratio of active worker to retiree has been in decline for a long time. In 1945, there were 45 workers available to support one retiree. By 1960, the worker/retiree ratio had fallen to 5-to-1.
Today, the ratio is 3-to-1. By 2050, when the youngest baby boomer is 85 years old and a majority of his/her peers have passed away, the worker/retiree ratio will have fallen from three workers per retiree to two.
Planners typically find it appropriate to use Social Security benefits as a benchmark in a financial plan. When preparing clients for the changes ahead, the starting question is usually, "What would you need for retirement?" The discussion turns to what Social Security will do and then to what can be set aside to fill any gap between a goal and projected cash flow.
What advice can planners give on how to deal with this? Here are a few suggestions:
1) Work on what you can change. Whenever possible, take care of your own financial obligations.
The simple formula of having a plan, saving systematically, living within your means, and using debt wisely goes a long way toward carrying you and your family in good times and bad.
