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Let’s face it, we all know this country is facing a retirement crisis. The first of the Baby Boomers turned 65 and started retiring in 2011. The number of Boomers retiring each year will rise rapidly over the next decade or more. Before the end of this decade, Boomers will be turning age 65 at the rate of 8,000 per day.

This massive retirement of Baby Boomers will stretch our health care and health delivery systems to the max and beyond. Our public safety net – entitlements – has long been poorly managed, ill-thought-out and threadbare. Imagine what will happen as tens of millions of Boomers retire.

Yet the worst part of all is that so few people or families have saved anywhere near enough for retirement. According to a survey conducted earlier this year, 60% of workers have saved less than $25,000 for their retirement. And 36% have saved less than $1,000. This is appalling!

Another new study found that 43% of Baby Boomers are at risk of running out of money in retirement. And this number is almost certainly understated because, as I will discuss below, many Boomers are untruthful about their assets when responding to retirement surveys. The point is, most Boomers are far, far behind in saving for their retirement.

Given the magnitude of the coming retirement crisis, it will be a continuing theme I will be writing about periodically in the months and years ahead. I hope to present you with some ideas for saving more for retirement and, of course, making more on your investments.

Baby Boomer Retirement – Massive Savings Deficit

Remember how many of us worried in 2006 and 2007 that the housing market was in a bubble, and how it could end badly? Yet we were told by market analysts that it was different this time around, and that soaring home prices were here to stay. We all know how that turned out.

Yet here we go again. Just about everyone knows we are facing a looming retirement crisis. Tens of millions of “Baby Boomers” are starting to retire. They are going to live far longer than any previous generation. And they are going to need medical care and nursing care well beyond the needs of previous generations.

The so-called Baby Boomer generation are those roughly 77 million Americans born between 1946 and 1964. It was the largest generation ever created at that time. The first Baby Boomers turned 65 in 2011 and started retiring. That number will continue to rise rapidly over the next decade and longer. By the end of this decade, Boomers will be turning 65 at a rate of about 8,000 a day. As this unique cohort grows older, it will transform the institutions of aging – our entitlement systems – and threatens to bankrupt our nation.

Yet so few people or families have saved anywhere near enough for retirement, and our public safety net is poorly managed, ill-thought-out and threadbare. But even though we know the overall picture doesn’t add up, somehow everyone keeps on hoping for the best. Our politicians on both sides of the aisle refuse to touch our massive, unfunded entitlement programs.

Three new reports paint a bleak picture of what the future may look like for Americans when they retire. Most Americans haven’t saved nearly enough for their retirement, but there are even more things to be concerned about.

For example, many Americans may enjoy an overall standard of living well below that enjoyed by retirees in many other developed countries, according to a new analysis by money management giant Natixis (which owns bond firm Loomis Sayles, among others). Natixis looked at a broad array of measures, from economic factors to health care, and found that the US ranked 19th in the world for retirees’ quality of life. That is far below countries such as Switzerland and Norway, which (apparently) have sorted out their retirement systems, and we are behind most of the other leading developed nations.

“The United States narrowly holds its spot among the top 20 nations globally in its capacity to meet retirement security needs and expectations,” report Natixis researchers. They looked at 20 key performance indicators across five areas: health care, material well-being, finances in retirement, and broader areas like “quality of life” and the environment.

As an illustration, Natixis notes that we rank number-one in the world – by a longshot – in health spending per capita, but we are only 33rd in life expectancy, 52nd in the number of doctors per capita and 58th in hospital beds per person. Yet most Americans have no idea. We have long been told that the US healthcare system is the best in the world. So much for that!

How does this happen in the wealthiest country in the world? Consider these facts:

• 46% of Americans have less than $10,000 saved for retirement. (Employment Benefit Research Institute)

• 40% of baby boomers now plan to work until they die. (AARP)

• 36% of Americans say they don’t contribute anything at all to their savings. (CNBC)

• 87% of adults say they are not confident about having money for a comfortable retirement. (

• Expected retirement age is up to 67 from age 63. (AARP)

Those who took the surveys pointed to the rising cost of living and day-to-day expenses as the reasons they are unable to save enough for retirement. And many also noted that rising healthcare and long-term care costs will have a major impact on their ability to afford a comfortable retirement.

60% of Americans Have Saved Less Than $25,000

Most Americans are in terrible financial shape for their retirement. The Boston College Center for Retirement Research has just updated its “National Retirement Risk Index,” a measure of just how many people can expect to be financially comfortable in retirement.

It doesn’t make for happy reading. According to Boston College, based on current projections, about half the country is at risk of being unable to maintain their standard of living in retirement. Among low-income workers, that rises to 60%. But it’s 40% even among the higher-income workers.

One of the stark issues that comes out of the report is how little the stock market boom has helped. As the Boston College researchers note, citing data from the Federal Reserve’s 2010 Survey of Consumer Finances, most people don’t own many stocks or mutual funds. Stocks and equity mutual funds accounted for just 17% of the wealth of high earners, 6% of middle earners and 2% of low earners. I would suspect that the numbers are somewhat higher today, but the point is still the same.

Far more important is the value of housing – which has recovered much less dramatically than the stock market. A large portion of Americans’ net worth is from the value of their home. Meanwhile, by suppressing short-term interest rates for the last five-plus years, the Fed has effectively levied a harsh tax on savers who need income from short-term deposits – including retirees.

The picture is similar in a new study by the Employee Benefits Research Institute (EBRI), a Washington, D.C.-based think-tank. Their “Retirement Readiness Rating” says that at least 43% of Boomers and “Generation Xers” are at risk of running out of money in retirement. Among the poorest half of the country, that number rises sharply. Among those in the poorest 25%, EBRI estimates a stunning 83% are at risk of running out of money in retirement.

Most stunning of all, the EBRI survey found that 60% of workers have saved less than $25,000 for their retirement. And 36% have saved less than $1,000. This is appalling!

The most alarming news, though, is in the fine print. These bleak numbers are based on very rosy financial scenarios. EBRI assumed no changes in Social Security or Medicare in the future. It also assumed outsized financial returns: It estimated people would earn about 8% above inflation each year on their stocks and over 2% above inflation on their bonds — net of fees. Good luck with that! They may be lucky to earn half that.

John Hailer, CEO of Natixis, calls the picture worrying: “Individuals need to be concerned about their own retirement needs, and not just be dependent on government and corporations.” He notes that most people don’t even understand the problem.

But get this: 89% of those surveyed told Natixis researchers that they were “on track” to reach their retirement goals – but 54% of them didn’t even have a plan and 45% of them couldn’t even define their retirement goals. As noted above, Boomers tend to lie in these surveys because they know they have spent way too much and saved far too little.

Boston College’s Alicia Munnell, Anthony Webb, and Rebecca Cannon Fraenkel, authors of the risk-index report, warn: “The only way out of this box is for people to save more and/or work longer.” No kidding!

How Much Money Do You Think You Need to Retire?

Being in the financial industry, we often help clients plan for retirement and we are happy to do so. However, since our clients tend to be higher net worth individuals, most already have a retirement savings plan in place, and still others are already in retirement. The facts above and below will be most helpful for those of you who are still saving and planning for retirement.

To maintain living standards into old age, the Financial Analysts Journal and others estimate that you should have roughly 22 times your desired annual retirement income in financial wealth when you retire, especially if you expect to live until your late 80s or 90s.

So for example, if you want to spend $50,000 a year in retirement, you need about $1.1 million beyond what you will receive from Social Security – assuming both partners retire and they have a home mortgage. If your home is paid off, you’ll need that much less.

This number above is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in savings and retirement accounts, and thus will rely mainly or solely on Social Security.

If we manage to accept that our savings and investments will likely not be enough, we usually enter another fantasy world – that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on.

Unfortunately, this ignores the reality that unemployment rates for those over 50 are increasing faster than for any other group, and that displaced older workers face a higher risk of long-term unemployment than their younger counterparts. If those workers ever do get re-hired, it’s usually not without taking at least a 25% wage cut in many cases.

But the idea is tempting; many people say they don’t want to retire and feel useless. Professionals say they can keep going, “maybe do some consulting” or find some other way to generate income well into their late 60s or early 70s. Others say they can always be Walmart greeters. They rarely admit that many people retire earlier than they want to because they are laid off or their spouse becomes sick.

The point is, working into your later years is not always possible and therefore, isn’t necessarily a viable plan.

Baby Boomers Now Have to Play “Catch-Up”

Figures vary but it is widely believed that over half of Baby Boomers do not have a formal plan for retirement in place. Yet I believe most Boomers know that they haven’t saved nearly enough to provide the lifestyle they hope for. As a result, I expect that millions of Boomers will increasingly resort to ways to save more and generate more cash to be used for retirement.

As noted above, many will have to work longer than they’d wished. Many will have to sell homes they had hoped to keep – to tap the equity, such as it is, or consider a reverse mortgage. Household budgets will be squeezed and squeezed again. This will be bad for the economy.

In addition to these cost-cutting fiscal exercises, Boomers will be increasingly searching for ways to earn more on their investments – playing “catch-up.” This means that many will be looking for investments with outsized returns – strategies that can be extremely volatile, and in some cases are not even legitimate.

Above all, investors must be able to determine if they can live with the volatility and risks. It is very common for strategies that produce high returns to have big losses along the way.

In accordance with Circular 230 Disclosure

An Enrolled Agent and U.S. Tax Court Practitioner, I represent taxpayers in front of the IRS and the U.S. Tax Court on self-prepared tax returns and tax returns prepared by other tax preparers. I handle CDP hearings, collection cases and contested issues in IRS audits. With more than three decades of experience working with small individual returns to large, multi-company and multinational companies returns I have a broad breadth of experience and am in the position to help you.

As an Approved Continuing Education Provider, I am available to speak to organizations throughout the United States on Tax and Tax Research issues.

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