Baby Boomers Could Face Financial Hardships in Retirement

SEC, NASAA, and ASEC Host Expert Panel Discussion at the National Press Club

WASHINGTON, DC (April 4, 2000) – Tens of millions of Baby Boomers grew up listening to Mick Jagger and the Rolling Stones sing “Time Is On My Side.” However, experts say time is running out for many Boomers who will soon reach retirement age. And unless they dramatically change their spending, saving, and investing habits, those Boomers may be singing “can’t get no satisfaction” in retirement.

As part of this year’s Facts on Saving and Investing Campaign, the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), and the American Savings Education Council (ASEC) will host a panel discussion at 12:30 P.M. today at the National Press Club to address how millions of Baby Boomers could find themselves struggling financially in retirement unless they start saving and investing more now. (Note: A lunch buffet will be available starting at noon.)

Moderated by Dallas L. Salisbury, president and CEO of the Employee Benefit Research Institute (EBRI) and chairman of ASEC, the panel will include: Congressman Jesse L. Jackson, Jr.; Tom Gardner, co-founder of The Motley Fool; Paul R. Carey, Commissioner of the SEC; William A. Halter, Deputy Commissioner of the Social Security Administration; Bradley Skolnik, Indiana’s Securities Commissioner and president of NASAA; and Robert L. Reynolds, president, Fidelity Investments Institutional Retirement Group.

Some sobering statistics: the 1999 Retirement Confidence Survey (RCS) found that 20 percent of workers in their 40s report that their household has not yet begun to save for retirement. In addition, the median amount saved among 40-something households is less than $50,000 ($45, 238). Unfortunately, that’s nowhere near enough.

Experts recommend that individuals have between 70-80 percent of their pre-retirement income to maintain their current standard of living in retirement. According to ASEC’s Ballpark Estimate retirement worksheet, that means a 45-year old who earns $50,000 and who plans to retire by age 65 and currently does not have any money set aside for retirement needs to accumulate $336,000.

As another example, let’s look at a couple where both partners are 45-years old in the year 2000 and each make $45,000 a year, for a combined household income of $90,000. Let’s assume that this couple does not have access to an employment-based retirement plan and that they are not saving for their retirement. This couple also has a tax burden of $24,153, giving them an after-tax income of $65,847. Since this couple has no savings, that means they are spending their entire income after taxes.

With no additional savings, Social Security will be this couple’s sole source of income in retirement. Considering the factors mentioned above, their annual Social Security benefit will be $33,648. Given this couple’s current lifestyle choices, they will have a deficit of $32,199 upon retirement per year. This couple upon reaching retirement age will be faced with only two options – either continue working or radically alter their lifestyle.

“Too many Americans seem to be waiting until the last minute to fund their retirement, but successful investing takes time,” said Paul R. Carey, Commissioner of the SEC. “Investors should realize that the number of years they hold an investment can be just as important as its rate of return.”

That’s why the SEC, NASAA, and ASEC urge every American – regardless of age or income level – to start saving and investing now and take advantage of employer-sponsored retirement programs. Research shows that 75 percent of those with access to a 401(k) plan participate in them. But at the same time, 66 percent of workers cash out their 401(k) account balance upon job change. When individuals spend their retirement money on automobiles and vacations, they forfeit the benefit of compounded earnings that can turn even small amounts into tens of thousands of dollars over time.

“For Boomers hoping for a financial miracle, it’s not going to happen,” said Bradley Skolnik, Indiana’s Securities Commissioner and president of NASAA, a group of state securities regulators. “Instead, they should be taking concrete steps to prepare of retirement. For some, that may mean cutting up credit cards, finding second jobs or delaying retirement. It`s never too late to get started.”

Even relatively small financial “trade-offs” can help Americans accumulate enough money for retirement. For example, a 40-year old can save $50,000 by age 65 just by getting “takeout” instead of dining out once a month and investing the difference. (Assuming $45 per month invested at a nine percent rate of return for 25 years.)

Finally, it’s not enough for Boomers to save without knowing how much they will need. Another RCS finding shows that only half of Americans have tried to figure out how much money they should save for retirement. That means that even savers don’t know if they are saving enough. The survey found that the median amount saved by those who had done the calculation was $66,532, compared to $14,054 for those who had not.

“Saving for retirement needs to be a priority for Baby Boomers,” said Dallas L. Salisbury, president and CEO of EBRI and chairman of ASEC. “They can either take charge of their finances today, or pay the high price of not having prepared properly tomorrow.”

The Facts on Saving and Investing Campaign was launched in 1998 to encourage Americans to get the facts they need to achieve financial security. Campaign partners include the U.S. Securities and Exchange Commission, the North American Securities Administrators Association, and a broad coalition of government, industry, consumer, and educational organizations.

Throughout the month of April, securities regulators in more than 40 states will encourage workers to fill out the Ballpark Estimate, a one-page worksheet developed by the American Savings Education Council that helps people quickly calculate how much money they should save each year for retirement— a necessary first step toward developing a financial plan.

Regulators will also conduct town meetings and other community outreach, including classroom visits to teach students the importance of saving.

The 1999 Retirement Confidence Survey (RCS) gauges the views and attitudes of working and retired Americans regarding retirement, their preparations for retirement, their confidence with regard to various aspects of retirement, and related issues.

2000 Headlines, Newsroom