Boomers Failing to Thrive in Retirement Savings (L-O-N-G)

A recent news item says that Boomers are NOT taking advantage of available “catch-up” provisions in IRA and 401(k) plans.

The catch-up provisions (as of 2006) amount to an extra $1000/year for IRAs and $5000/year for 401(k) plans, beginning at age 50. This amounts to an extra $5000 for IRAs and $25,000 for 401(k)’s that could be working for them as they await retirement—the earliest draw being possible at age 55. This is on top of the boost in regular annual contributions that went into effect this year.

Those are also extra dollars that could be sheltered from taxes. So why aren’t they taking advantage of it?

Possible reasons: it’s unnecessary, massive debt, or a resignation to work until they drop (to avoid boredom, maybe? God knows they won’t be avoiding taxes). I’m pinning my bets on the ‘riding mower set” up to their eyeballs in debt.

Boomers, or Bobos (from the book “Bobos in Paradise”) either want to continue their current consumption level beyond retirement age, or simply do not want to cut back to better fit into the economic realities of their retirement balances.

Whatever the reasons, it’s a shame most of them aren’t taking advantage of the extra savings allowances, even if it’s only to shelter money from taxes. It’s also a shame that those thrown away benefits can’t be handed down to someone who could really use them, like young savers.

I have a Boomer-era sister who was raised in a pension-and-benefit working environment, and as a result, never got the chance to take part in a 401(k) plan, and thought she’d never have need of an IRA…then one day, she sat down with a pension advisor to talk about her impending retirement, and the load of bricks fell on her. After 30 years of civil service work, she discovered that day that her pension, plus Social Security, minus the taxes on it all, wouldn’t yield her nearly enough to carry on her current lifestyle. She told me that she was going to have to get a job somewhere just to cover her expenses—at nearly 60. Who did she think was going to hire her at that age, and with no other experience than bureaucratic paper-pushing? Then, there’d be the expectations on both sides of the employment contract—boy, would she be in for a big shock!

I suggested she pay off all possible debt NOW while she still had a decent income to do it with—the credit cards, the vehicles, everything but the mortgage. “I can’t afford it!” she replied. “I can’t afford to retire at all. I’ll have to work while receiving a pension AND Social Security!”

I read that e-mail and immediately grabbed my head with both hands. Having just recently dealt with my father-in-law’s estate and pension/Social Security/whole life policy tax woes, I knew what Sis was in for—no matter where her income was coming from, it was ALL going to be taxable, and at Boomer rates (this is code for AMT). This meant that she worked, and is going to continue to work, to pay taxes and not bring much home. Her working into retirement is only going to make a bad situation worse, what with the hour/pay limitations of Social Security being what they are.

I told her to pay off what she could, sell off what she could, and look into buying some investment property—just one to start. I then went into a long litany about the tax structure, passive income and capital gains vs. ordinary income, and I found myself completely mystified as to why I was explaining all this to a woman 15 years my senior.

Her next question was about how the Social Security system worked, and how she could find out how much her “account” held in it. After laughing uproariously, I wrote her as to how there is no “account” per se, that it’s all just one more check Uncle Sam has to write each month, that she should study those statements she gets annually from the Social Security department, and that she should RUN, not walk, to the nearest library, plant herself in the 332 Dewey decimal system section, and start checking out titles.

I then began to wonder if ALL Boomers were as financially stupid as my own sister. All those financial planning commercials on TV make them seem like they’re a relatively savvy bunch when it comes to money, seeing as how some of them actually work in the financial industry. I guess they learned quickly how to SPEND it, but not so well at how to SAVE it.

Depression-era parents scrimped and saved just so Boomers could spend it on Martha Stewart merchandise, Hummer vehicles, RIM Blackberries, and McMansions in suburbia—complete with those riding mowers on which they can ride around and proclaim their debt levels as they mow. Estate liquidators are going to be very busy in the near future and for decades to come, as Gen-X and Y (Boomer children) do their best to shuck off the excess crap left to them by their all-consuming locust-like parents. Unfortunately, the whole cycle will inevitably repeat itself as Gen AA (or whatever the proper designation is for Gen-X and Y’s kids) becomes a whole new crop of human locusts (and $3/gallon gas becomes the norm).

Who knows—if my sister is any indication, then a huge chunk of graying and balding population is headed for big trouble, and dragging the rest of us down with it. As things usually go, the rest of us will in some way or other end up paying for the ineptitude of Boomers and Uncle Sam in trying to deal with their retirement.

Expect higher taxes, lower services, and greatly diminished results as the leftover residue of the Boomer passage through life into death. They are the generation that will be handing their children (and us) a world that is worse off than the one they lived in. As one gangster TV character on trial said: “Ours is the generation that made money, and theirs is the generation that throws it away.” Sheesh, what an epitaph!

All this and more for a lousy $1000 extra per year—$83 and change per month—and it will cost us much more than that to make up for their lost opportunity. What I couldn’t do with an extra $1000 -$5000 per year just in sheltering possibilities! What would be income shelter for me is mere gas money for them.