Baby Boomers: Poorer in Old Age Than Their Parents

2/22/14
 
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from Bloomberg Businessweek,
1/4/14:

Lee Manchester

Eighty-seven-year-old Lew Manchester has just returned from a three-week trip touring Buddhist temples in Laos and cruising the Mekong Delta in Vietnam. His 61-year-old daughter Lee lives year-round in the basement of a friend’s cottage on Cape Cod. Both worked all their lives, both saved what they could. Yet Lew, a son of the Great Depression and former company man, and Lee, a baby boomer who has pursued careers as an entrepreneur and a midlevel manager, ended up in different economic strata. “Timing is everything,” says Lee, who now works at an inn, “and my dad’s timing with jobs, real estate, and retirement benefits was better.”

While plenty of baby boomers, born from 1946 to 1964, have become affluent, and many elderly across the U.S. face financial hardship, the wealth disparity of this father and daughter is emblematic of a broad shift occurring around the country. Many graying boomers are less secure financially and have a lower standard of living than their aged parents. The median net worth for U.S. households headed by people aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011, according to U.S. Census Bureau data. Boomers lost more than other groups in the stock market and housing bust of 2008, and in the aftermath many also lost their jobs at a critical point in their productive years.

That’s left many ill-prepared to provide for themselves as they approach old age, even as they are likely to live longer than their parents. For the first time in generations, the next wave of retirees will probably be worse off than the current elderly.

Lee Manchester knows her later life will be more austere than her father’s. She made a choice early on to become an entrepreneur rather than work for a large company with benefits, as he did. She started a commercial construction company in 1986 with $150,000 from a divorce settlement. She hired a dozen employees and succeeded in landing contracts supplying steel parts for buildings until the construction industry slumped in 1989. Bouncing back, she became a sales manager in the airport parking business. Still, she didn’t start saving for retirement until her late 40s, when her employer established a 401(k) account. Today, her retirement savings of $120,000 is right at the median 401(k) balance for households headed by baby boomers, according to 2011 data from the Center for Retirement Research. That will provide just $4,800 a year to boomers when they turn 65, assuming they take out 4 percent annually, the top amount many financial planners say should be withdrawn to assure retirees don’t run out of money during their lifetimes.

Lew Manchester hasn’t worried about money since retiring 23 years ago at 64. Every month, in addition to his $1,750 Social Security payment, he gets two pension checks: $1,000 from Marsh & McLennan (MMC), the last insurance company he worked for, and $783 from the military for serving in the Army Reserve for 20 years. He also has more than $800,000 in savings, close to $400,000 of which he cleared from the sale of his Hartford, Conn., home in 2005. A long-term care policy he’d purchased years earlier for $500 a month over 10 years paid out more than $275,000, covering most of their living expenses, and it’s still available for him to use if he needs it.

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