News Flash: Boomers fail to face the truth that they face substantial gaps between their future desires and reality.
Oh, it’s not really news, they know it but not doing anything about it.
The growing healthcare costs, tagged with the current decline in housing and nest egg value, are forcing new ways of coping. Boomers are essentially left with two main options:
1. NOT retiring and continue on working till the very last days of their lives. In every developing country that is the norm, so maybe there isn’t any harm in Americans working till death.
2. TAKE MORE RISK. Risk and Return Are Correlated – The Higher The Risk The Higher Return, so you might be able to grow your nest egg back.
There is no option 3. Vangurds’ customers in the age of 50 – 64 don’t have enough time to compensate for the average 40% nest egg decline they had in 2008. If they stick to their current strategy, they gamble that we will have a bull market for most of 2009 – 2024 time period.
Everyone, from Paulson to every financial planner out there, are back at the drawing boards figuring out how to substantially revise their plans. This is exactly what boomers should do. As of today, it includes Bakers as well.
You know you are doing something right if:
1. You spend 3x – 10x more time on planning and learning. If you spent 2 hours a month on your retirement portfolio planning, make it 10 hours from now on. Read more, as your advisor also had 40% decline in his / hers portfolio, so they don’t know more than you.
2. Somehow, you create a “pool” of advisors that have different ideas.
3. Decide: work till death or take more risk. You have to decide, and then act on it. Otherwise, you are facing a crisis in a few years.
Realistically, only 20% or so of boomers will revise their plans and act upon them. The rest are subject to unchangeable behavioral patterns such as lack of discipline, delaying actions in uneasy or complex matters, and planning short term.
However, since there are 77 million people within this category, there is a big prize for those will be able to get the 80% to act.