The baby boomers redefined each stage of life as they passed through it. This generation also will retire in a way that is distinct from their parents and will set the standard for generations to come. Baby boomers are likely to live longer, more healthful, and more active lives than any retirees have before, yet few will enjoy the generous pensions and retiree health benefits enjoyed by many of their parents. Boomers will be saddled with the headache of continuing to manage their own investments, and if they haven't saved enough, they'll likely have to work long after the previous generation dropped out of the workforce. Here are 10 ways baby boomers' retirement will be different from their parents'.
Living longer. Retirement for boomers will last longer than retirement for their parents. The number of people ages 65 and older in the United States is expected to more than double by 2050, rising from 39 million today to 89 million, according to the Census Bureau. Some seniors will be retired for more years than they spent in the workforce. "Our moms and dads were quite delighted to find themselves reaching their 65th birthday, but now we look around and see 80-year-old athletes and 70-year-old college students," says Ken Dychtwald, president of the consulting firm Age Wave and author of With Purpose: Going From Success to Significance in Work and Life. "People are waking up to the idea that living a long life has become commonplace."
No pension. Living longer means more retirement years that will need to be financed. Most private-sector workers won't get a monthly check from their former employer in retirement or retiree health benefits. While 40 percent of private-sector workers received a traditional pension in 1975, that number declined to 17 percent by 2006, according to the Employee Benefit Research Institute. More employers freeze their pensions every year and replace them with 401(k)'s.
Managing investments. Those without traditional pensions will have to continue managing their own nest eggs throughout retirement or will have to hire professional help. Baby boomers also will need to make decisions about how much risk to accept in order to beat inflation and still make sure they don't outlive their savings. "The burden for figuring out how to retire has shifted from the employer and government to the individual," says Jonathan Pond, a financial planner and author of Safe Money in Tough Times: Everything You Need to Know to Survive the Financial Crisis. Retirees need to decide on their own—or with the assistance of a financial adviser—how to adjust their portfolio allocations as they progress through their retirement years and how much of their nest egg to spend each year.
Required minimum distributions. If boomers' retirement money is in tax-deferred accounts, Uncle Sam will take a large share because all withdrawals are taxed as regular income. "A lot of people retire and they have put all their money aside in tax-deferred accounts. Taxes are going to exact a big toll on these people," cautions Pond. "If your 401(k) balance is $400,000, it is worth about $300,000 after taxes are taken out." Retirement account withdrawals become required after age 70½. Required minimum distributions are calculated by dividing the balance of your retirement accounts by your life expectancy as determined by the Internal Revenue Service. Seniors who fail to withdraw the correct amount must pay a 50 percent penalty and income tax on the amount that should have been withdrawn.
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Part-time jobs. Many Americans will continue to work during the traditional retirement years because they need the income. Others will continue working because they enjoy the mental stimulation and social opportunities a job can provide. "The prospect of a permanent vacation just doesn't feel intellectually stimulating, physically rewarding, or financially viable," says Marc Freedman, founder and CEO of Civic Ventures and author of Encore: Finding Work That Matters in the Second Half of Life. "People are moving into a new life stage. They want an identity, they want a paycheck, and they want a sense that their experience is going to good use." Sometimes a second career will require retraining. "It might be smart to make an upfront investment in education or do an internship," says Freedman. "Recognize that you are investing in a career that might be 10 or 25 years in duration."