Recent economic challenges are taking their toll on Baby Boomer and Generation X women, according to a report from the Insured Retirement Institute (IRI). Among the Gen X women who were surveyed, 35% find it more difficult to pay the mortgage or rent (21% for Boomers), 13% have taken early distributions from a 401(k) or IRA (9% for Boomers), 19% stopped contributing to their 401(k) or IRA (17% for Boomers), and 16% delayed plans to retire (25% for Boomers). For those not certain about when they will retire, current or anticipated savings shortfalls is the primary factor. Two-thirds (65%) of Boomer women have weak or no confidence in having enough money to live comfortably in retirement. It's even higher for Gen X (78%). The challenge becomes even greater when you factor in the longer life expectancy of women. The IRI suggests that use of a financial advisor produces better retirement savings outcomes, but 77% of Gen X and 55% of Baby Boomers have not sought out this financial support. For those who don't use a financial advisor, insufficient savings is the primary reason.
While the use of a financial advisor may very well produce positive results, I think we have a case of which comes first, the savings or the use of a financial advisor? For those who are struggling, I think most will say that the savings comes first, regardless of whether or not it should. To encourage improved retirement savings, I believe we need to take a page from Apple's "think different" approach. What if the Tax Code were amended to allow early distributions to be taken without penalty for financial hardship, but including incentives to encourage timely repayment. Knowing that the money would be available for financial emergencies would encourage more money to be put in the 401(k) or IRA in the first place. I outlined the concept in a recent blog post; here is a quick chart I put together describing the concept.
The U.S. Census Bureau projects that the population will continue to reflect greater percentages of older individuals over the next 3 1/2 decades. The 2012 estimated population for those 65 and over is 43.1 million. In 2050, this figure is expected to be 83.7 million. By 2050, surviving Baby Boomers will be over age 85. Even as the Baby Boomer population declines, the older population is expected to continue to grow. The U.S. population as a whole is expected to grow from 314 million in 2012 to 420 million in 2060. This important trend will have significant impact on many areas, including healthcare, social programs, retirement planning, transportation services, and more.
According to a review of the top 100 defined benefit (DB) plans by Pensions & Investments Magazine, the funded status of those plans improved from 80.6% in 2012 to 93.5% in 2013, almost the same level as in 2005. In 2007, the funded status had reached as high as 108.6%, then plummeted the following year to 79.1% during the economic downturn. The combined funding deficit of the top 100 plans declined from $302 billion to $122 billion. The improvement was attributed primarily to gains in the equity market. An impressive 97 plans improved their funded status in 2013, with 24 plans having a funding surplus. Interestingly, despite the purported decline in DB plans, assets have grown from $2 trillion to $3 trillion in private DB plans since 2008, according to the Investment Company Institute (ICI).
Blog Author - Ken Felsher
With over 25 years of writing, editing, and research experience. I enjoy sharing with my readers my love of working with content on a variety of subjects.
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