Here Come the Golden Boomers
by Shirley Ikehara
The leading edge of the Baby Boom generation is reaching the age at which that old Beatles song “When I’m 64” will actually refer to a time in their past. On January 1, 2011, the first Boomers (defined by the U.S. Census Bureau as being born between 1946 and 1964) will turn 65.
Even though age 65 no longer represents the landmark it once did, it still is a symbolic milestone. Baby Boomers are now transforming into so-called Golden Boomers. Some are already there, having retired at an earlier age. Others are closing in on retirement, though the youngest of the Baby Boom generation (those born in the early 1960s) may still be years away from it.
With retirement at hand or approaching, financial matters begin to transform. It’s a time when most people begin to focus less on accumulating wealth or buying insurance to protect their family against lost income, and more on finding a way to replace the regular paycheck in retirement and protecting against the risk of running out of money. If you are a pending Golden Boomer, there are a number of issues you should address as you enter this next phase of life.
Meeting health care needs
Medicare first becomes available at age 65. If you aren’t already receiving Social Security, contact Medicare three months prior to your 65th birthday to enroll. If you retire prior to age 65, you will need to find your own medical coverage before you become eligible for Medicare, either by carrying over insurance from a former employer (taking advantage of COBRA provisions in the law) or finding private insurance coverage. Even after you reach age 65, it is important to realize that only Medicare Part A is free. Medicare Part B and Part D (prescription drug coverage) come with a monthly cost. Beyond that, many retirees purchase supplemental insurance to cover expenses that Medicare doesn’t.
You should also prepare for long-term care expenses that can become a factor as you grow older. This includes costs such as nursing home stays or home health care. Many nearing retirement invest in a long-term care policy to help protect against excessive expenses for these services.
Timing Social Security
Today, individuals don’t qualify for full Social Security benefits until age 66 — with the threshold gradually rising to 67 in the future. You can still receive benefits as early as age 62, but the sooner you take the money, the lower your monthly benefits. What’s more, if you continue working up to your full retirement age while collecting Social Security, you will forfeit $1 in benefits for every $2 of earnings above $14,160 (in 2010).
The longer you can delay Social Security, the higher your monthly benefit will be. That may be an important factor to consider, particularly if you anticipate (based on family history of longevity and personal health factors) spending many years in retirement.
Covering essential expenses
One issue for retirees is making sure they have enough money on hand to pay for essential expenses (housing costs, utilities, food costs, automobile expenses, insurance, etc.). Reliable income streams such as Social Security and, if you receive one, a pension, can contribute toward these defined expenses. In addition, a strategy many use is to annuitize a portion of their retirement savings to assure that a guaranteed stream of income is available that is sufficient to pay the rest of their essential expenses. This is an example of the different kind of investment thinking that comes into play as you become dependent on your own savings to create a paycheck in retirement.
Preparing for inflated living costs in the future
Given that many of us can expect to spend 2-3 decades or more in retirement, investing usually cannot be limited to putting all of your money into fixed income investments. You also need to protect future purchasing power. Living expenses will double in about 24 years if the annual inflation rate is just 3%. If your retirement lifestyle costs you $5,000 per month when you reach age 65, it is reasonable to expect it to cost $10,000 per month if you live to age 90.
In order to ensure you have enough money to keep up with the rising cost of living through retirement, you may need to put a portion of your savings in investments that have the potential to generate returns which can outpace inflation, such as equities. At the same time—as many retirees learned the hard way during the market downturn of 2007-2009—you don’t want to expose yourself to too much risk by putting all of your money into the stock market. If you’re a Baby Boomer with your sites on retirement, work with a financial advisor to find a balance that works effectively for your circumstances.
Shirley Ikehara, Senior Financial Advisor with Ameriprise Financial Services, Inc. CFS®, CFP® Advisor is licensed/registered to do business with U.S. residents only in the states of Hawaii, Virginia, and Pennsylvania.