Thoughts on Retirement

By Jay Eshbach

Will you to run out of money in retirement? What happens if the “boom” in “boomer” is the sound of your retirement portfolios running out of money long before you’ve run out your youthful life force? If unprepared many baby-boomers face the prospect of running out of money in retirement! As a Financial Planner I am suggesting to more and more of my clients’ that their retirement portfolios include some form of guaranteed income.

I am seeing more baby boomers who are woefully ill prepared for retirement. Based on numerous statistics it wouldn’t surprise me if the unthinkable--running out of money in retirement--happens to 50% of them. And that % could be even higher.

Baby boomers have their heads in the sand when it comes to retirement. Two-thirds of Americans believe they will have the same lifestyle in retirement as they do now, even though less than 42% have ever bothered to calculate their retirement needs, according to a study by the Employee Benefit Research Institute (EBRI). The U.S. Department of Commerce reports the average savings rate is now close to (-)1.7%, (yes that is a minus) and the average savings for retirement is a pitiful $50,000.

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According to Price and Associates, 80% of top executives who are making between $500,000 and a million dollars a year in income (not net worth!) are worried about running out of money in retirement, and with good cause, as it is likely to happen at all levels of society.

To compound the situation, boomers will have a longer retirement than any other generation. I have clients that have been retired for as long as 30 years! Some people might end up being retired longer than they actually worked!

So let’s connect the dots: Baby boomers are likely to run out of money in retirement. It is going to be a big surprise to them. Investors hate surprises. Retirees who have run out of money do not have many alternatives, and the alternatives they do have are unpleasant. A retiree than runs out of money can: (a) go back to work (if they are physically able and they can find someone willing to hire them); (b) decrease their spending dramatically; or (c) die. These are some of the reasons more and more people are looking for guaranteed income during retirement.

Options? With CD rates on the decline what is a retiree to do? I would suggest looking at higher yielding Corporate Bonds, Fixed Annuities (with guaranteed income for life) or Variable Annuities (with guaranteed income for life). Sure with these options you are not going to have 10% and 20% rates of return each year, but you are also not going to run out of money.

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ABOUT THE AUTHOR: Jay Eshbach is 62 and has been a Financial Planner for 20 years. He manages over $100,000,000.00! His office is about 25 minutes from downtown Houston, Texas. In 2001 Jay was recognized as one of the top four Financial Planners in the United States by Research Magazine. His first book was published in 1996. In 2007 his second book, “Mistakes Retirees Make with Their Finances” was published. He tries to spend one week each month in Ixtapa. He can be reached at eshbach@esbach.com or www.eshbach.com. Securities offered through J.W. Cole Financial, Inc.

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