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Friday, April 18, 2008

Retiring Baby Boomers are Screwed and Most Don't Know it Yet

According to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) released last week, 60% of current retirees have less than $25,000 in total savings and investments.

Personally, I can’t imagine how they manage it. Sure, some of them have pensions. Virtually all of them are receiving Canada Pension. But heading into your “golden years” with less than $25,000 must be terrifying.

Those of us still in the workforce could use a little shaking up too. The same survey shows that 36% of workers have less than $10,000 in retirement savings! Another 13% have less than $25,000. In other words, nearly half of all workers have less than $25,000 saved for retirement.

Some of these folks could benefit from reading Aesop’s tale about “The Ant and the Grasshopper.” There are clearly a lot of grasshoppers among us.

I think I know why. Surveys show that nearly half of all workers – I think we can assume which half - believe their retirement costs are the responsibility of their employers or the federal government. Big mistake.

Yet pension plans are going the way of the Dodo bird. They've been replaced by RRSPs (the Trust Tax was a direct hit on RRSPs). Young workers will be expected to pay for this demographic time bomb. Guess what...they won't pay.

For political reasons alone, current retirees are safe. But we baby boomers can’t realistically expect future generations to pay the mountain of taxes required to support boomers into their 90s. It’s just a matter of time before the age of eligibility is raised, benefits are cut, or both.

However, if you’re working now you still have time to make the choices that will lead to a more comfortable retirement. As the American writer Elbert Hubbard said, “responsibility is the price of freedom.”

You have to forego current spending to receive future benefits. Essentially, you need to save as much as you can, for as long as you can, beginning as soon as you can. (Millions of boomers are learning that this means working longer than they originally planned.) You then have to take this savings and begin to create an income portfolio now. At first it will be slow but with the magic of compounding it will begin to grow.

When you take responsibility for your financial welfare, it’s empowering. You let go of the idea that it is someone else’s obligation to provide for you in retirement. It means making hard choices. But, trust me, no one at your company or or civil servant cares as much about your financial future as you do. They are trying to create their own financial future at your expense. For proof.....look at teachers pension funds. It won't do you any good unless of course you are a teacher.

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