Baby Boomers Are Hitting Peak 65. Founder of Retire Wise Shares What It Means For Retirement Planning Beyond Pensions

The baby boomer generation's graying will significantly impact retirement planning, healthcare, Social Security, taxes, and investing this 2024 and beyond. The U.S. Census Bureau predicts that 12,000 people will turn 65 daily this year, bringing the total to 4.4 million by 2030. By 2030, all boomers, born from 1946 to 1964, will be 65 or older, resulting in one in every five Americans reaching the traditional retirement age.

Life expectancy has improved, and today's 65-year-olds can expect to live at least another 20 years. However, 80% of households with older adults are struggling with money, risking economic insecurity as they age, according to the National Council on Aging (NCOA.)

As the baby boomer generation enters retirement, a substantial wave of retirement savings and pensions is flooding into the economy. This marks the transition to the drawdown phase, a critical juncture where careful management is essential to avoid potential pitfalls such as taxes and the risk of depleting one's nest egg prematurely.

Contrary to the days of pensions and social security, only a mere 7% of individuals in the United States currently benefit from a pension plan. The landscape has shifted towards numerous retirement investment vehicles, necessitating a strategic distribution plan to navigate the complexities of the modern retirement landscape.

The rule, which allows individuals to withdraw 4% of their retirement savings annually, is facing challenges due to inflation and changing market conditions. To safeguard financial well-being in retirement, it has become imperative to develop a comprehensive plan that takes into account withdrawal risk, sequence return risk, and longevity risk. “The old metaphor of the three-legged stool of retirement planning - employer pensions, personal savings, and Social Security, no longer holds,” says Shawn Maloney, founder of Retire Wise.

Yes, the accumulation phase, where individuals amass their wealth is incredibly important. However, a well-thought-out distribution strategy is often overlooked. Diversification is no longer a choice; it is a necessity to mitigate the risks associated with market fluctuations and unexpected economic downturns.

Shawn Maloney, states, “Unlike previous generations who might have relied solely on pensions and social securities, today's retirees need to adopt a more proactive approach.” The drawdown phase demands careful consideration, and it's vital to recognize the importance of staggering funds across different phases: a liquid lower end for immediate needs, a middle tier for short-term savings, and a growth-oriented top bucket for long-term sustainability.

The lower end of the distribution strategy involves relying on short-term savings, which can be held in savings accounts, money markets, or similar instruments. The middle tier is dedicated to savings for the near future, while the top bucket employs growth-oriented investments that combat inflation and ensure the longevity of the portfolio.

One significant challenge is the sequence of returns risk, where the initial years of retirement can have a substantial impact on investment portfolios. A poorly timed retirement, coupled with market downturns, can deplete retirement funds significantly. However, strategic planning can help mitigate this risk and potentially leave a legacy for future generations.

One needs to dispel the notion that one cannot control market forces or the timing of retirement. While external factors may influence outcomes, managing risks is within one’s control. Mr. Maloney explains, “Transfer of wealth management does not just mean moving money out of accounts; it is equally protecting that wealth.” Baby boomers must strike a delicate balance between drawing down funds for living expenses and ensuring the continued growth and protection of their remaining assets.

Retirement planning is a deeply personal endeavor, far from a one-size-fits-all approach. Individual preferences and goals play a pivotal role in shaping retirement strategies. Whether one envisions a laid-back lifestyle or an active engagement in charitable activities, having a clear purpose and vision is essential. This vision, encompassing both financial and non-financial aspects, guides the distribution of wealth and the allocation of resources in retirement.

Successfully navigating retirement challenges involves a forward-thinking strategy. By diversifying investments, creating a thoughtful distribution plan, and considering both financial and non-financial aspects, individuals can embark on their retirement journey with confidence and resilience.