The Financial Crisis is Worse for Older Americans

While the stock market meltdown over the past few weeks and the housing problems of the last couple years have been tough on many of us, we have time to recover before retirement. That is not the case for older Americans who were hoping to retire in the next few years. A summary of the situation:

For millions of Americans approaching retirement, events of recent weeks are delivering a clear message: Not so fast. With nest eggs shrinking, housing prices still falling and anxieties about their financial future growing, the oldest members of the baby-boom generation are putting the brakes on plans to leave the office.

A few thoughts for the rest of us:

1. This is why it's good to have as big of a retirement cushion as possible. In case something like this happens again, we can still retire as planned.

2. That said, you may want to save for retirement assuming their will be no Social Security help, then use Social Security payments to be your buffer/margin for error. Then again, it's not sure that SS will be around when many of us retire.

3. This serves as a reminder that as you approach retirement, it's good to move assets into less risky/volatile options to protect you as much as possible from large, negative impacts to your investments.

Comments

[Mr. ToughMoneyLove]

"Then again, it's not sure that SS will be around when many of us retire."

I read and hear this a lot but I don't understand why. What makes you think this is the case? Do you expect that when you retire every senior citizen will be on his own? No pension? No SS? Or do you think that retirement will end - everyone works until they drop dead? Can you name a single member of Congress whom you think would vote to end SS for your generation?

[Philip]

I think the most important is #3 that they should not be heavily invested in the stock market at that point and be in less volatile market. Every planner should know this and recommend this.

[FMF]

Tough --

I think:

1. The problems with SS are well-documented.

2. After the past week's events, I'm not going going to say anything is impossible. So, could SS have a meltdown like the finance industry? Of course.

3. What's the harm in saving like you'll get nothing from SS?

[Stephen]

Agreed. #3 is the most important. ASSET ALLOCATION. ASSET ALLOCATION. ASSET ALLOCATION. And I'll say it once more. ASSET ALLOCATION. Every year you should be updating your investments to avoid things like this from happening.

[Bad_Brad]

Tough Love - keep in mind that right now, our country's demographics are extremely friendly to keeping SS solvent - lots of Baby Boomers who are going to retire soon are not going to be too fond of any candidate that suggests doing anything to reduce SS. On the other hand, when my generation (GenX) is about that age, there will be a much larger generation of younger people (the Echo Boomers) who will likely be much more amenable to the idea of getting 6.2% of their paycheck back each payday than the idea of SS many years down the road. I fully expect the rug to be pulled out from under me in some way. It's just a matter of when and how much.

[Mike the Cynic]

Also remember that SS is paid out in the same meaningless monopoly money that they print out to pay for these bailouts. By the time I retire, I'm sure I'll be getting a million dollar SS check every month. Of course, a trip to McDonald's will probably run two million.

[Gen X Micrographic]

I am also in the Gen X cohort. We will be a comparatively small voting bloc all of our lives behind the boomers and ahead of larger Gen Y. When most of the Boomers have gotten help from SS, the politicians will feel safe cutting benefits or raising the benefits age on Gen X, or letting Gen Y go private sector. Unless the "current workers pay for the current retirees" structure gets fixed, I believe Gen X is most likely to lose its benefits because of the small size of our cohort.

Realistically, I believe there will be some SS support there for my generation, even if it is a fraction (40%, 30%) of what the Boomers get. As I plan for the future, I refuse to count on this, though, because the possibility of wholesale failure with my generation holding the back, while unlikely, is not remote.

[Gen X Micrographic]

Should have said "my generation holding the bag,"

[Todd]

I also agree that your #3 is most important. Reducing risk as you get closer to needing the money is very wise. This would have helped prevent a lot of the losses. Not all but a lot.

[Johnson Spliffman]

I'm nearly 50 years old and all my life I've been hearing about how we should kiss the older peoples' butts 24/7. A good 30% of my paycheck is confiscated so that these duffers can spend it in the casino and then complain endlessly about me and adults my age. When I am old and decrepit I don't expect the free rides and free everythings from the wonderful Generation X with their infinite (and I might add completely unjustified) hate and rage.