Retirement Planning Ann Arbor

1.    Much Longer Retirement: Many people in previous generations worked as long as they could and very few were fortunate enough to have aretirement that would be considered “golden” by today’s standards. How many spent the last third(or more) of their lives pursuing hobbies andleisure instead of working? Boomers retiring intheir 60s can expect to live about 30 years inretirement, which is a lot longer than their parentsdid.

2.    Higher Expectations: Not considering tours ofduty in Europe or the Pacific, how much travelingdid past generations of retirees do? Boomers’parents were Depression-era babies who practicedfrugality and continued to pinch penniesthroughout retirement. In stark contrast, boomerswant their retirement to include travel, vacationhomes, new cars, dining out, etc. This is fine, butit is expensive. Therefore, boomers need to planfor a much more expensive retirement than theirparents ever would have expected.

3.    Personal Savings Instead of Pensions: Thegreatest generation might have had a lower percapita income but many also had corporatepensions. Boomers wanted higher salaries,freedom to change employers and the ability tosave independently. Corporate pensions werelargely phased out, giving way to the 401(k).However, when given the option, most boomersdidn’t start saving enough or early enough. Today,many boomers haven’t amassed enough inpersonal savings, and most don’t have meaningfulpensions compared to their parents.

4.    Rising Instead of Declining Interest Rates: Inthe 1980s, when the greatest generation started toretire, interest rates were much higher than theyare today. The long decline in interest ratesprovided a great return to bond investors. Theboomers are facing the very opposite situation.Instead of an ever-declining interest rate, they arefacing the likelihood of steadily increasing interestrates during their retirement.

5.    Exotic Investment Options: The greatestgeneration had relatively few investment options;mostly ordinary bonds and certificates of deposit.Today’s boomers, on the other hand, are beingoffered an ever-expanding universe of incomesecurities. The investment industry has provideda lot of rope, and a lot of new and exciting waysto lose it all.

6.    Deregulations: If they felt like taking risk, theboomers’ parents might buy some dividendpayingstocks. At the time, most of the dividendpayingindustries, such as finance and utilities,were highly regulated. Decades of deregulationhave caused these industries to become lesspredictable and more risky; hence, the certainty ofpreviously assumed dividends is now extremelyuncertain.

Investment Consultant Ann Arbor

What Boomers Really Need: As boomers give upon stock gains, they tend to focus on income investing, and are always on the hunt for higheryields. There is no secret to finding higheryielding securities. In one way or the other, ahigher yield just means higher risk: either termrisk, credit risk or price risk. Higher-yieldingsecurities always have more risk than loweryieldingsecurities. And some high-yieldsecurities can even be riskier than a simple basketof stocks, but with a lower expected return. Forthese reasons, you may want to ask your advisorto establish a sustainable withdrawal rate andbuild a diversified portfolio focusing on totalreturn rather than focusing on dividendproducing,interest-paying securities.
Diversification does not ensure a profit or protectagainst a loss in a declining market. The opinionsherein are those of Morningstar, Inc. and shouldnot be viewed as investment advice.