The first wave of baby boomers is drifting toward retirement, but many boomers are ill-prepared for the financial rapids that await them.
Leading causes for their problems are rising debt levels, equity-stripping home loans and a general lack of knowledge about retirement finance.
In fact, "even though boomers are moving closer to retirement age," an AARP report in May said, "they are no more likely to feel prepared financially for this phase of their lives now than five years ago."
By 2008, early boomers (those born between 1946 and 1955) will begin turning 62 years old. And with the average 60-year-old expected to live 22 more years, boomers could find their nest eggs empty before their time is up.
According to Dr. Robert Butler, president and chief executive of the Manhattan-based International Longevity Center-USA, an affiliate of the Mount Sinai School of Medicine, boomers have saved on average just $100,000.
"But to have even a reasonably adequate nest egg, the early boomers would have to by now have a median wealth of $589,000, the late boomers $609,000," Butler told the Deseret Morning News and other journalists earlier this month in New York at the 2004 Age Boom Academy. "They are a far cry from that."
Sterling Jenson, senior managing director for Wells Capital Management in Salt Lake City, said some boomers are targeting savings of $1 million or more because future interest rate returns on investments could be at much lower levels compared to historical earnings.
"It will take a much bigger nest egg," Jenson said. "I think if you looked at that number ($1 million) there's very few people in the baby boom population that have saved that amount of money."
However, it may take that kind of money should financial markets take another nosedive or private-sector pensions continue to fail.
The overall market return of Standard & Poor's 500 Composite Index was negative in 2000, 2001 and 2002 — the first three-year decline since 1939 to 1941 — a disaster for many 401(k)s.
In 2003, the market came back, Jenson said, but so far in 2004 returns are flat.
"It's going to take a heck of a lot more to retire," Jenson said. "A lot of people just don't think that Social Security is going to be there to supplement them, or at least not to the degree that they have thought in the past. So I think more and more baby boomers are planning to work through retirement, . . . to supplement their income with part-time work or something."
Butler, who was the first director of the National Institute on Aging and who won the Pulitzer Prize for his book, "Why Survive? Being Old in America," said only one in five private-sector workers are covered by 401(k)s. Of those covered, one in four do not contribute.
"We're still in the ballpark of boomers in saying that," Butler said. "Despite the Enron disaster, we still do not have clear-cut laws and regulations with respect to the amount of company stock that an employee must have within his 401(k). That percentage can be remarkably high, so if the company does face a tragic disaster of any sort, the value of their 401(k)s is remarkably reduced."
The Employee Retirement Income Security Act of 1974, which set minimum standards for most voluntarily established pension and health plans in private industry, does not cover defined contributions of 401(k)s and leaves many workers with no backup protection.
"We see looming in front of us the repetitions of the steel industry failures and the airline industry failures," Butler said. "I think one of the next issues actually will be comparable to the savings and loan crisis — which cost our country somewhere between $150 billion to $200 billion — and that's the private pension plan, which is probably more precarious and serious than the Social Security issue."
Deficient savings, the recent disaster of 401(k)s, uncertainty over the future of Social Security and a potential meltdown of private-sector pensions paint a dark future. Could there be more bad news?
Bill Peters, a retirement income planner based in Sandy, said he is seeing an increasing number of boomers and seniors getting into trouble with debt.
"You'd be amazed at the number of people still making rather large mortgage payments in their 70s," Peters said. "Lots of times that payment will eat up a good bit of their fixed income, so they've got to get income from somewhere."
Often the debt originates from home equity lines of credit to pay for remodeling, health care or "bailing out the kids."
"Seniors are the fastest-growing bankruptcy demographic," Peters said. "Lots of times they are being counseled to lower their interest rate by securing credit card debt on to their home and making the interest tax deductible."
Tamara Draut, director of the economic opportunity program for Demos, a New York-based think tank, said people heading into retirement are racking up more credit card debt.
"Because baby boomers were really the first generation to delay child-bearing, what's happening is a lot of the major expenses of raising children, like paying college tuition, paying for health care, have butted up against the need to save for retirement," Draut said. "Today, not all, but many people, are going into credit card debt because of health care expenses, because they are living paycheck to paycheck, because their wages haven't grown with the cost of things like college tuition and health care."
According to a briefing paper by Draut released earlier this year, the "average self-reported credit card debt among indebted seniors increased by 89 percent between 1992 and 2001, to $4,041."
For those ages 55 to 64, a 47 percent increase in credit card debt was tracked during the same period, to an average of $4,088.
"Older families proved just as vulnerable as the general population to newly deregulated credit industry practices aimed at drawing new customers and increasing revolving balances," the report said. "On fixed incomes, unexpected or unaffordable costs present a difficult choice for the elderly: borrow to pay, or go without. . . . Borrowing increasingly means sky-high costs and the very real prospect of endless debt service."
Draut recommends a national usury law, caps on the interest rates that credit card companies can charge and passage of anti-predatory home mortgage lending laws, designed to curb costly sub-prime home financing products targeted at the elderly.
"What we're seeing is that a lot of families are using credit cards when unexpected expenses come up, like a car repair, or it's back to school time and the kids have outgrown their clothes," Draut said. "There is just so much less slack in the family budget that many families are routinely turning to credit cards to pay for all but the basic things."
In general, Peters said, boomers are unprepared.
"It's a whole galaxy of issues," Peters said. "People are not saving enough. They have no clue what kind of pension payout options to select, and very few are seeking the advice of a financial adviser."