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Wednesday, January 19, 2011

Baby Boomers Face Shaky Prospects As Retirement Age Hits

Mike Vanatta sits in his Vero Beach, Fla. home working on one of his blogs. Vanatta was laid off recently from his job as a sales executive. And with savings of just $5,000, he's on a budget for the first time. (AP)

Mike Vanatta sits in his Vero Beach, Fla. home working on one of his blogs. Vanatta was laid off recently from his job as a sales executive. And with savings of just $5,000, he's on a budget for the first time. (AP)

The first baby boomers turn 65 this year and all signs indicate that they will have a very different retirement from what their parents enjoyed. Boomers’ parents likely had one employer for life and a full pension to rely on in retirement.

But today’s 65-year-olds are more dependent on employer-matched 401(k) savings plans that have taken huge hits on the stock market.  Their social security benefits are shrinking and many may have no choice but to keep working and delay retirement.

We take a look at the unique issues facing boomers with Professor Alicia Munnell, director of the Center for Retirement Research at Boston College.


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  • Hil Cranmer

    do you have recommended web sites for calculators, etc when one is beginning to plan this stage?

  • Sue Rabut

    In all the discussions I hear about retirement I NEVER hear anyone address the concerns of the huge (and growing) number of people who are self-employed, 1099 workers (fee per service) who may work for several employers, NONE of whom contribute to any type of 401K matching plan, or any type of retirement fund. PLEASE comment on OUR concerns. (I am a freelance musician.) I currently have NO retirement as I have never made enough money to have extra for savings.
    Please NOTICE that a very large sector of the population isn’t even being addressed in these issues! There are more working people out there besides the 9-5-ers. (who are mostly middle and upper class.)

  • me

    have you considered that there are millions of people who are in their fifties who cannot get jobs already at their age due to age discrimination? what do you tell them?

  • Maxine Blank

    My father, who lives in Michigan, was essentially forced to start drawing his social security early because he was laid off, not because he didn’t feel like working.

  • Greg Wallingford

    I would like to know Prof Munnell’s take on a little known opportunity through the Soc. Security Administration to pay back your SS benefit for the years taken prior to age 70 to receive that higher monthly benefit beginning at age 70. Thanks

  • Private Sector Frog

    Is there such a thing as a sub-prime reverse mortgage? I wonder if the bank can walk away from a reverse mortgage if it is under water?

  • Paul Levinson

    Hello Robin,

    Your speaker on retirement income issues got the annuity issue all wrong. She clearly did not know about charitable gift annuities, which pay rates higher than commercial annuities (the ones the insurance companies sell). They are absolutely guaranteed by the assets of the charity to which the people give the funds, will pay for the lives of the beneficiaries, and, after they are gone, will make a very nice gift to that charity. Your expert could have pushed them for BC, or any of the thousands of other charities that offer them.

    BU offers them too, and I (you may remember me from Development in 2003-4 and doing house pahties together?) got the first one that benefits ‘BUR. Think of any charity big enough to run its own shop, and they offer Charitable Gift Annuities.

    The objection to them is that the purchasing power of the payment erodes over time b/c of the effects of inflation (e.g. the payment is fixed forever; inflation slowly increases the cost for things, so the annuity $$ buy less).

    But, the donor gets a nice tax deduction when the gift is made, and in almost every case a portion of the income payment is tax-free for the recipients.

    Your speaker was very conservative and not very creative or informed outside of her chosen area of focus. I hope you’ll take this up another time so listeners can get a more complete picture of the options for making their retirement investments go as far as possible.

    Still love your show and your comedic comments during pledge drives…keep up the good work!!

    All Best,
    Paul Levinson
    617.905.9921 (cell)
    617.990.0205 (home)

  • Robin Young

    Hi Paul! Of course I remember you..
    Thank you for writing, altho, it appears you’ve launched a bu-bc smackdown! And you know how ugly THAT can get!

    We’re going to address all these questions down the road.. stay tuned

    Best
    Robin

  • Linda

    Professor Munnell, when talking about annuities and reverse mortgages, didn’t discuss the high fees associated with both. These are not necessarily good vehicles for most people. It’s important to give accurate information!

  • J Heafield

    Prof. Munnell wonders why people don’t like annuities. Here’s two more reasons:
    1. After living through the financial crisis, which may not be over yet, I have little faith that the company to which I give my savings will be around to pay the benefits.
    2. Interest rates are pathetically low now, so I can’t buy an annuity with a normal yield. When 1-year CDs are back to 5%, maybe annuities will offer better returns.

  • Marty, Brentwood NH

    With 25 million people continuing to be under-employed, including those near retirement, isn’t it obvious that many are forced to take their Social Security benefits as soon as they possibly can, at age 62? Whatever equity they had in their homes has been slashed or eliminated in the last couple of years, as has their 401(k) balance. One kind of stimulus a wealthy nation like ours should be considering is to lower the age at which folks can tap into their paid-for Social Security benefits! (And Greg Wallingford is correct, they have the opportunity to repay their early benefits if they manage to find work or come into a cash windfall later.)

    Social Security should not be tampered with, except to expand it’s benefits, because it is proving to be a lifesaver exactly as it was intended to be. I recommend you read the economist Dean Baker’s review of its siuation in this recent article:
    http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/making-social-security-more-qprogressiveq

  • G. Wendell

    A brilliant PR piece. Lazy American journalism continues. Had NPR taken its time and actually researched Alicia Munnell and The Center for Retirement Research at Boston College, it would have found that both are affiliated with right wing industry front groups/think tanks: The American Enterprise Institute and The Brookings Institution.

    On the Center for Retirement Research website, you can find the following disclosure:

    “Currently, the Center has 12 corporate partners:
    AARP, Bank of America, InvescoSM, LPL Financial, MetLife, Nationwide Mutual Insurance Company, National Reverse Mortgage Lenders Association, Prudential Financial, State Street, T. Rowe Price, TIAA-CREF Institute, and USAA.”

    There is no surprise as to why Mrs. Munnell was touting reverse mortgages, annuities, and increasing the retirement age.

    Why pay for PR campaigns when you can have the U.S. media do it for free?

  • http://www.dougshivers.com Doug Shivers

    Wow. That last comment by G. Wendell explained everything I was wondering about. Why was your guest saying that a house is a great asset and should be used for retirement purposes (how about people that rent, are underwater with their mortgages, or have been foreclosed on?). How can people just “keep on working” if they have been forced into retirement or have been laid off in their 50′s or 60′s. Nobody is “relying on living off of interest from savings” like your guest said. The banks are hardly giving any interest at all right now. Is your guest even aware of what has been happening during the past 2 or 3 years? For your next show on this topic, please invite someone who is knowledgeable and not tied into the system that caused so much economic pain for all of us during the past few years.

  • David Rosenberg

    I’m worried that the companies that provide annuities could go bankrupt and then in a bankruptcy the annuity payments would no longer have to be paid out.

    Why should I trust these insurance companies with a pile of my money? Are there any guarantees about the “flows” from these insurance companies ?

    For example, I understand that long term care insurance companies aren’t doing well now financially.

    Also, if the annuity payment contract is somewhat tied to the interest rates that are available at the time of signing a contract, then it seems that one is taking an interest rate risk by buying an annuity at a period like now when rates are very low.

    It’s not hard to convert a pile of one’s own money into a flow. There are many formulas for that, which help to insure some tax benefits as well. So why should the insurance company be more favored to do this ?

  • Patricia Rosen

    Prof. Munnell’s recommendations for boomers hit hard by the economic troubles are so unrealistic and misguided it is hard to know where to start. If you are in your mid-50′s or older and working for a company, you have no control over how long you can stay on the job. Many employers are showing the door to boomers who are perceived as too expensive to keep on, laying them off before they can claim full retirement benefits. Those same people are pushed out of the workforce against their will, so “working for four more years” is out of their control. Frankly, the older and more experienced the worker, the more likely he/she will be let go in favor of hiring a younger, less expensive, less experienced person who can be worked to death and then fired at will. And just try to get another company to hire you when your are 58 or 60! And god forbid you should be out there looking for a job for many months!! Employers hold that against you as well.

    Perhaps the Prof. has tenure and can “choose” to keep showing up at her job for as long as she wants, but it is not the case for most people.

    Reverse mortgages are very inappropriate in many cases, as are expensive annuities. Now that I understand Ms. Munnell’s political point of view, I hope the producers at “Here and Now” will bring in a more realistic and informed guest to discuss this issue.

  • L. Menegon, H&N producer

    Here’s a site from Kiplinger’s Retirement Report
    http://www.kiplinger.com/tools/retirement-savings-calculator.html

  • Paul- Boston

    Don’t mean to be mean-spirited but I’m a well-educated, experienced, INDEPENDENT, fee-only financial planner who has wanted to help these people get their financial house in order. But most of them have decided to either work with a large brokerage firm who cares little about them although they’ll claim to care, take advice from their plumber brother-in-law (they call him a “genius”) or rely on the internet to do it instead. Sorry you chose one of those options instead.

  • judy

    A warning for anyone who takes early Social Security:

    If you earn more than about $14,000 your SS benefits get reduced. If you are unaware of this limitation, and continue earning, you are then penalized and have to pay back to Social Security what they paid to you.

  • Anonymous

    The HUD based reverse mortgage contains a mortgage insurance factor paid for by users that ensures that even if the loan amount is more than the home’s current value the borrower can continue to receive the monthly benefits that were set up at the beginning. The MIP funds, again, paid for by all in the program are not taxpayer funded. The bank will not walk away from the loan, borrower or home if underwater as long as taxes and insurance are current.

  • Anonymous

    the one we’ve used has been http://www.wellsrm.com since AARP took theirs down

  • http://pulse.yahoo.com/_WVVJWNFZEG3WGCYWYE65MWKI4Q JamesB

    Oh contraire Linda. After all, HUD has introduced a reverse mortgage that costs about the same as a conventional mortgage. Second, I believe you’re thinking about variable annuities from stock brokers and they have steep costs. Fixed annuities, from insurance companies, often have no fees at all. Nope, not for everyone, but they’re good vehicles for a LOT of people.

  • http://pulse.yahoo.com/_WVVJWNFZEG3WGCYWYE65MWKI4Q JamesB

    You’re absolutely right Paul. Each of us should take some of the blame for not having the rich, rosy retirement we envisioned all those working years. Here, here.

  • http://pulse.yahoo.com/_WVVJWNFZEG3WGCYWYE65MWKI4Q JamesB

    You should trust the insurance companies. You already are. Got homeowners insurance? Got car insurance? Life insurance? Yes, they are guaranteed. They’re more highly regulated than banks and backed by a state insurance fund in each state. Interest rate risk? Would you rather risk your money in this market environment where seemingly every 7 years or so you lose half of it? Or put it in a bank and pay taxes on the (low) interest banks pay, earning even less, or put it into a annuity that’s paying more than the banks and its tax deferred?

  • http://pulse.yahoo.com/_WVVJWNFZEG3WGCYWYE65MWKI4Q JamesB

    Fixed annuities are paying 3% for the next year. Guaranteed. And if interest rates rise, they’ll likely pay more next year, easily more than the banks pay. And it’s tax-deferred. Lot of good things about annuities. Money is pouring into them.

  • Billstorm

    The professor doesn’t understand reverse mortgages. When the homeowners die, the borrowers heirs inherit and house and the mortgage. The heirs then have the option to payoff the mortgage and keep the house or to sell the house, payoff the mortgage and keep the balance of the proceeds. I more is owed on the house than the proceeds from the sale, the mortgage insurance covers the difference for the bank.

  • George J

    Hi, Linda: Just as soon as last June, most major mortgage companies dropped their origination fees and servicing set asides, reducing the costs for a Reverse Mortgage by almost 65%. Then, two months ago, FHA came out with the HECM Saver, which reduced the up front PMI from 2% of appraised value down to .01% of appraised value. In return, the consumer receives less money. Thanks.

  • Percyihara

    Prof. Munnell I am happy to hear that you have a positive opinion of a reverse mortgage; however, I am sure by now you do know that when a borrower obtains a reverse mortgage that they do not lose their house as you mention in this radio program.

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