Around the time they turn 50, many people unconsciously begin to ratchet up their spending. Instead, prominent retirement planning scholar Alice P. Munnell thinks financial planners and employers need to wage a campaign to get their clients and employees to hit the pause button at this crucial midpoint in their lives.

“There really is a decision point in many households in your 50s after the kids leave the house and people enter their highest earning decade,” said Munnell, director of the Center for Retirement Research at Boston College.

Simply raising awareness about this issue would help, she said, speaking at the FPA's annual conference in San Diego this past weekend.

That’s because boomers’ retirements are at risk. Their portfolios have shrunk thanks to the recent recession and their homes lost 31% of their value between 2007 and 2009. A host of other factors further darken the picture:

* Men are living four years longer today compared with the 1980s. Women are living two years longer.

* Out of fear, many people are taking their social security benefits at 62 instead of 70, decreasing their monthly income stream by as much as 30%.

* Health care costs are rising rapidly.

* Two-thirds of retirees will need some form of expensive long-term care.

* People don¹t reduce the risk in their investments as they age as they should.

* Many neglect to roll over all their 401(k) assets.

* Unemployment remains at 9%, preventing many older workers from staying in or re-entering the workforce.

“Boomers can control spending at 50,” Munnell said, by setting a more sustainable standard of living for themselves. “A household that cuts expenditures by $1,000 a year between age 55 and 65 ends up with $13,000 more at retirement.”

A member of the president’s council of economic advisors in the Clinton Administration, Munnell spent most of her career at the Federal Reserve Bank of Boston. In her role at the center, she has spearheaded research into the conundrum of saving boomers’ imperiled retirements.

Munnell further urged planners to propose that their clients make incremental changes in their thinking and behavior along three main channels: Saving more, working longer and living more efficiently. Although this three-prong formula sounds patently obvious, many boomers don’t use it at age 50 because they fail to fully grasp their situation. They also feel paralyzed by the multiple hits to their holdings and end up doing nothing at all.

However, Munnell said studies have found that when offered corrective strategies, many boomers broke out of their paralysis and became willing to make changes. “We told them essentially how much longer they’d have to work and how much more they’d have to save,” Munnell said. “Most who downsize adapt and flourish. Financial planners could help move boomers to action by clarifying their constraints.”

Marsh writes for Financial Planning, a Source Media publication.

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