On personal finance.

Boomers' Retirement Woes Not So Weighty

December 15, 1996|By Jane Bryant Quinn, Washington Post Writers Group.

It's getting to be conventional wisdom that the Baby Boom generation won't have enough money to retire. But common sense tells you that can't be true. Thousands of octogenarians won't be sleeping on newspapers in the park.

Some Boomers will find that they can't maintain their present high standard of living. But as a group, they'll do at least as well as their parents did and probably better.

Contrary to myth, pension coverage has greatly improved since the days when our parents retired. Back in 1950, only 25 percent of the work force had an employer-sponsored plan. Today, it's 47 percent.

The plans most commonly offered--401(k)s and 403(b)s--require you to contribute money of your own. Skeptics say they're not as good as old-fashioned lifetime pensions. But, in fact, many Boomers will find that they're both better-paying and more secure, says David Wise, a professor at Harvard's John F. Kennedy School of Government.

The caveat is that you have to fund your plan, and some Boomers aren't contributing enough. But whatever you do save can be moved from job to job. Workers who leave old-fashioned plans after just a few years get very little out of them.

What's more, each age group coming up is saving more than the group before. For example, take 50-to-54-year-olds--the gang that time is creeping up on. The portion with tax-deferred retirement savings rose to 46 percent in 1991, from 36 percent in 1984, Wise says. Their median, real financial assets rose 40 percent.

Two-thirds of current workers say they'll probably work after they "retire," says Dallas Salisbury, president of the Employee Benefit Research Institute (EBRI) in Washington, D.C. That's a deliberate lifestyle choice. The longer you work, the more you can spend and the less you need to save.

Employers today don't go out of their way to hire older part-timers, but they never used to give flextime to working mothers, either.

Once there's a large older population willing to work for small change, companies will find more for them to do. Many Sun City retirement communities now offer detached guest houses, usable as home offices.

Younger Boomers grumble that they missed the huge runup in housing prices that their elders enjoyed. But this isn't as critical to your retirement as you think. Many older people never sell their homes, so the size of their equity doesn't matter all that much. It counts chiefly as a buffer against some awful financial reverse.

Boomers, on average, should readily match their retired parents' standard of living, says James Smith, a senior economist at Rand Corp. in Santa Monica, Calif. The big question, for every worker, is how to maintain the lifestyle you have now.

Based on telephone surveys (which may understate available assets), the average Boomers have only a third of the money they'll need, argues economist Douglas Bernheim of Stanford University in Palo Alto, Calif. That's for accounts specifically labeled "retirement savings" plus a portion of other assets.

Counting all assets (but not homes or potential inheritances), their pots might be 45 percent full. Married couples, households earning more than $60,000 and workers with traditional pensions are faring better than average. They're not home free but they're further along than the scaremongers say.

Workers themselves have grown sharply more pessimistic this year about their current retirement-savings rate. "That may actually be good news," EBRI's Salisbury says. They're getting a firmer grasp of what they're going to have to put away.

Old-age poverty may rise among lower-income groups. Workers without high-school diplomas are faring worse than their parents did. This group has always depended on Social Security and welfare, but society today is becoming reluctant to pay.

All other groups, however, have higher real incomes and assets than their parents did, leaving them in a better position to save.

To save more, you're going to have to spend less, but that may happen naturally. Americans' peak spending years run from 45 to 54, according to the Bureau of Labor Statistics. After that, and after the kids leave home, expenses ratchet down. People decide that they have enough material goods and start buying extra investments, instead.

After 65, living expenses fall off sharply. If you doubt it, look harder at the lives of today's retirees. When they first quit work, they may have traveled a bit more. But in general, they live simply and less expensively--and that's not so bad.