Many millennials grew up with parents from the baby boomer generation and have been told since the day they started their first job to start saving for retirement. Statistics have shown that because of those early warnings, many millennials are farther ahead in saving for retirement than their parents ever were.
Ironically, the opposite is true for baby boomers. Because many did not receive the same advice they have imparted on their children, retirement experts say many older workers do not have the resources necessary to support themselves after retirement.
Seth Ravine, consumerism expert and chief revenue officer for Acclaris, which focuses on consumer directed benefit administration solutions, says benefit advisers need to reinforce comprehension of benefits for baby boomers today and how to maximize those benefits by utilizing the most tax advantages offers to increase saving.
”When looking at the challenge that the boomers are going to have, we have a couple major trends that are happening,” Ravine says. “We have shifts in pensions and employer sponsored benefits that people were relying on.”
Ravine says he recently saw Dow Chemical has been slowly ending their pension plans and they expect to stop offering pension plans within the next five to seven years.
“We want to show baby boomers what they can do to replace those benefits, increase their 401(k) and how they can start planning for health expenses in retirement is critical,” Ravine says.
Larry Rosenthal, president of Rosenthal Wealth Management Group, says the first thing every baby boomer needs, when preparing for retirement, is a financial plan to get an idea of what they will need once they are ready to retire.
“They need to take a look at their current income, their current standard of living, current expenses, cash-flow needs and build a financial plan to see what it is going to take,” Rosenthal says. “Some baby boomers have a pension, some don’t. Most have social security; so a lot of peoples’ retirement is going to be based off of social security payments and investment income for 30 years in retirement.”
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Utilizing other forms of saving
Besides the traditional methods of saving such as having a 401(k) or paying into social security, many financial advisers are asking clients to utilize their HSA if they are enrolled in a high-deductible health plan.
Although HSAs are intended for medical purposes many reaching retirement age are discovering that the money saved with in an HSA can just as easily be carried over into retirement years to help pay for future medical costs that will inevitably occur as the retiree gets older.
Ken Waineo, senior director of business development and sales operations for retirement sales for The Standard, says HSAs have a lot of tax benefits and therefore are very similar to IRAs.
“On top of those tax benefits, HSA accounts can be carried over year after year, so they can pay for lots of different medical expenses,” Waineo says. “The fact that you can save this money on a tax beneficial basis makes it a pretty flexible vehicle and it is a really effective way to have some retirement savings.”
Waineo adds that the use of stable value funds is another tool to save for retirement. These funds are considered to be the most conservative when investing for retirement, he says.
“They are beneficial because as baby boomers get closer to retirement, their time horizon is getting shorter, from the time they put that money in to the time they take it out,” Waineo says. “With that short time horizon, volatility becomes a bigger and bigger issue and stable value funds tend to be investments with much lower volatility in both stocks and bonds. They can be appropriate as part of the mix for any baby boomer.”
Rosenthal says baby boomers need to be looking at all forms of investments if they want to get as much out of retirement saving as they possibly can.
“They need to look at all means of savings capabilities,” Rosenthal says. “Non-deductible IRA contributions converting it to Roth, Roth IRAs, Roth 401(k)s, pre-tax IRAs, pre-tax 401(k)s, regular after-tax savings and investments, real estate, the HSA systems, all of that stuff.”
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Understanding what retirement looks like
Compared to other generations, baby boomers are considered one of the most unprepared generations when it comes to preparing for retirement. This is because many have become saddled with having to care for dependents for longer periods of time and some have taken on the responsibility of taking care of their older generation as well.
“Baby boomers have turned themselves into a ‘sandwich generation,’” Rosenthal says. “Many have to help support adult children that may or may not even be in their home and still having to financially assist a mother-in-law or a mom in their elder years.”
Because of having these greater responsibilities later into their lives the idea of retirement has shifted to not necessarily meaning that they never work again. Many retirees have decided to return to work after retirement on a part-time basis to help put a little extra money in their pocket.
Ravine says there is never a time that is too late to start saving but instead just adjust perspective as to what retirement will be. “The faster boomers are able to accept these new realities and the quicker they move to planning and leveraging employer resources, not only a 401(k) for wealth generation, but how do you plan for the healthcare expenses,” Ravine says.
The average monthly healthcare expense for a couple at 65 is $543, according to HealthView, but expect to spend more than double that amount each month by the age of 85. Ravine says many boomers have not prepared for this but encourages baby boomer to seek out these alternative options for saving because they are out there and they are helpful.
“The whole point of our angle on this is that there is no generalization,” Ravine says. “They are the wealthiest generation in history, they are going to have more assets under management than any other generation and it is staggering. But they also have the most chronic conditions and they are going to tax our healthcare system like no other generation has. A lot of them do have the means, but it is about understanding the reality.”
