What Has Changed?
Longer retirements. The combination of workers retiring earlier and living longer means people are spending a longer time in retirement.* The concept of spending the last third or more of life pursuing hobbies and other leisure activities was foreign to most members of previous generations.
Personal savings replace pensions. Corporate pensions were far more common when boomers’ parents were in the workforce. Now, 401(k), 403(b), 457 and other defined contribution plans are more common.** The change gave boomers more freedom to change employers throughout their careers, but transferred to them much of the responsibility to save enough for retirement.
Interest rates. Bonds have traditionally been popular among retirees seeking a stream of retirement income. In the 1980s, when boomers’ parents began retiring, interest rates were high. Currently they’re very low. This matters because bond prices move in opposition to interest rates. When interest rates go up, bond prices go down, and vice versa. Since interest rates can’t go much lower than they are now, when they move, they’ll rise. And that means bond values will fall. The situation was the opposite when the previous generation retired.
What Can You Do?
As your parents likely told you, preparation is the key to success. To enjoy the retirement lifestyle you want, keep these steps in mind.
- Estimate how much you’ll need. The Ballpark E$timate® at www.choosetosave.org can help you quickly identify approximately how much you need to save to fund a comfortable retirement.***
- Take advantage of Uncle Sam’s help. Use a tax-advantaged account such as your 403(b) or 457 plan to save for retirement and supplement your CalSTRS or CalPERS pension.
- Save more. Go through your household budget in detail with an eye toward spending less so you can save more.
- Invest wisely. As you near retirement, it’s more important than ever that your investments are not too aggressive or too conservative. You don’t want to risk losing a major chunk of your nest egg just when you need it, but you need to at least keep pace with inflation to avoid having your buying power erode. Use this site to learn more about investing strategies.
- Seek professional advice. If you decide to seek the assistance of a financial advisor, be sure to read "Selecting a 403(b)/457 Advisor & Understanding Plan Fees" for help in determining what kind of advisor you need and what fees you will likely pay.
* Source: “Retirement Age Declines,” Bureau of Labor Statistics, www.bls.gov.
** Source: “An Evolving Pension System: Trends in Defined Benefit and Defined Contribution Plans,” Employee Benefit Research Institute, www.ebri.org.
*** Website provided for information only. No endorsement is implied.