We’ve all seen the commercial. The late Dennis Hopper, a revered icon of the Easy Rider days of the 1960s and a poster boy for the “love generation” – aka the baby boomers (although not technically one himself) – is standing on a beautiful beach with calming, azure water; warm, soothing sands; puffy clouds; and a hint of an inviting, uninhabited island on the horizon. He’s wearing a black collared shirt and a pair of ultra-cool, understated shades, and sports a small salt-and-pepper goatee. Holding a tattered dictionary, he reads the definition of the word “retire”: “to withdraw, go away, disappear.” Then in his inimitable, sort of aloof, rebellious voice, he announces, “Time to redefine.”
He drops the dictionary on the beach and the music begins. Bah-dah-dah-dah-dah-bump. Bah-dah-dah-dah-dah-bump.
With the opening chords to “Gimme Some Lovin’” by the Spencer Davis Group—classic 1960s rock—pulsating underneath, Hopper goes on to tell us that, “Your generation is definitely not headed for bingo night. In fact you can write a book about how you’re going to turn retirement upside down.”
Unfortunately, it looks like we’re not going to turn retirement upside down in quite the way that Hopper and Ameriprise, the sponsor of the ad, envisioned. We’re going to turn it upside down because most of us are pulling our hair out in a state of outright panic and shock
The Way We Were Most of our parents had pensions, Social Security and the value of their homes to fund their retirements, creating a certain expectation in their children that our post-career lives would be somewhat comfortable as well. Unfortunately, our generation generally doesn’t have pensions or defined-benefit retirement plans as formally defined (unless perhaps you’re a union worker or public employee). We’ve seen the value of our homes diminish, and even if Social Security—a sort of transfer payment from the next generation to ours—is still around when we need it, the maximum payment (currently about $3,000 per month) doesn’t really excite anyone. Oh yeah, and one other thing: Our cherished 401(k)s and IRAs have tanked.
As part of the research for my book, Baby Boomer Bust? How the Generation of Promise Became the Generation of Panic, I conducted a survey of a broad spectrum of baby boomers in spring 2009—when the effects of the economic downturn of 2008/2009 settled in, after the initial shock and numbing period. Because the online sample was not random, the results are not projectable to the entire population, but nonetheless, they provide us with a broad-scale qualitative snapshot of the feelings, behavior and the adjustments baby boomers made as a result of the downturn. (If anything, our panel was more upscale than the population at large, thereby giving us a good “acid test” of the impact of the recession.)
I asked our online panel many questions, but one of the most important was, “How do you plan to pay for your retirement?” The sassiest answer? The lottery.
And what about housing? Our parents’ generation practically went to the bank on the appreciation in the value of their homes. Could the baby boomers ride that escalator as well?
The bad news: Almost half the people we talked to estimated that the value of their homes declined by 10-30 percent in the previous 12 months.
The good news: Almost 60 percent of the baby boomers I talked to own their homes and think they will be fine in terms of being able to make their mortgage payments going forward. Surprisingly, only about 8 percent fear that their houses are “underwater.”
So with cautious optimism, it looks as if baby boomers will get some return on their housing investment. Of course, that’s all dependent on the housing market coming back in future years, what they actually paid for their house, how long they’ve held it, how many refinancings they have been forced—or will be forced—to do, and of course, their employment now and in the future.
As one baby boomer told me, despite the fact that their loan-to-value ratio is only at about 20 percent, “it’s all dependent upon staying employed.” Another added, “The answer is based on the condition of my husband’s employment. With difficulty I could maintain my home with my present salary, but any cost increases would force me to sell it or find a second job.”
And now for the coup de grâce. We invested in a magical panacea called a 401(k), which was designed to incent savings that would accumulate with deferred taxes over the years and ride the never-ending rise of the stock market; at a mere 6 percent or 7 percent a year, our financial advisors told us, the cumulative value of what we stashed away would double every 10 to 12 years.
Mesmerized, we ogled the spreadsheets. Jesus Christ, honey! In 2020, our 401(k) will be worth $3 million. Maybe we should start looking for that little shingle-style cottage with a water view on Nantucket.
Then the bottom fell out.
The 14,000 Dow from 2007 became the 6,700 Dow in March 2009. Down more than 50 percent. The Dow has subsequently recovered, but many of us boomers had to borrow from our savings and portfolios during this time to fund our daily living. So when the market rebounded, guess what? We had less of a financial base to rebound from.
Without doubt, the economic downturn of 2008/2009 wreaked havoc on the lives, dreams, aspirations, consumption habits and net worths of our cherished baby boomer generation. I found a number of interesting and sometimes frightening themes in my survey of this vaunted generation.
Let’s start by tackling the veritable 800-pound gorilla in the room: retirement.
A Less-Than-Idyllic Retirement More than 30 percent of the baby boomers I talked to told me, “Frankly, I don’t think I’ll ever be able to retire.” About 43 percent of them thought they were OK before the current economic downturn but now doubt their ability to retire based upon the current value of their assets.
A prevailing thought was expressed by one of the respondents: “The idea of retirement has become further and further away for the average and below-average citizens in this country.” And another told us: “I will not be able to retire and maintain my present lifestyle.”
According to Dr. Ronald Manheimer, former Executive Director of the NC Center for Creative Retirement at UNC Asheville, “There are several studies and surveys out there done by academic researchers and financial services companies that paint a dire picture of boomers’ ability to retire soon or ever. In the aggregate this is probably true, though most will eventually retire either because they want to or have to. They will simply adjust … not painlessly, but resignedly. People will have to sell their homes and move into apartments or low-cost condos. They will have to find satisfaction and meaning in their later years through other means than greater wealth would have allowed.”
I asked baby boomers how they planned to fund their retirements. They were able to pick several as many sources as relevant from a list of options. The leading sources were 401(k)s (63 percent), Social Security (61 percent) Personal Wealth (41 percent, but that number is somewhat redundant with 401(k) and housing), and Sale of Existing Residence (35 percent). Only 28 percent mentioned that they had some sort of pension.
So exactly how adequate – or inadequate – are these resources to fund a decent retirement? The Center for Retirement Research at Boston College estimated that as of 2008, the average family approaches retirement with only $60,000 in retirement savings – downright shocking, isn’t it? So for most baby boomers the dream of retirement as that frolic on the beach with Dennis Hopper is exactly that: a dream. No wonder 17 percent of baby boomers told me, “I plan to work until I drop because I have to.”
Employment Angst Worrying about staying employed is an anxiety all boomers can relate to these days. Forty-seven percent of our total boomers group expressed some sort of fear or discomfort about their employment status going forward.
Comments such as, “My husband works for a modest-sized company and I would say his job is tenuous, too, because it’s dependent upon the travel industry”; “I work for a small business and feel secure for now but I think I’ll be laid off next winter if things don’t pick up”; “Had to lay off most of the people who work for me and change assignments”; and “I work for my town as an art instructor … I assume my job could be cut at any time” set the tenor of the group.
Another boomer told us, “We are toward the end of our earning potential. My husband and I are really feeling some major downturns financially. We were forced to pay our taxes on credit cards – at 22 percent … If we lose our house it will be the last one we own. My hubby is 56 years old … he now repairs metal roofs by himself. He cannot find someone to hire him outright … again, I emphasize a baby boomer is at the end of their earning potential. What now?”
However, all was not so bleak. Several boomers told us that things were going quite well: “I’m actually turning down work, I’m so busy”; “I run a $4 million software company which is growing”; and “I own an ad agency which has so far been relatively unscathed.”
And, from perhaps the luckiest person of the bunch: “I have a pension.”
The Enemies Within To get an accurate gauge of what the future may hold, it’s useful to examine the forces underlying the predicament of baby boomers today. Based on my research, I would posit there are four main elements behind the current plight of the baby boomer generation: a) the virtual evaporation of defined-benefit pension programs (based on studies I’ve seen, only about 20 percent of today’s workforce is covered by such plans – the rest of us have to rely upon defined-contribution plans like 401(k)s, which in most cases are an inadequate alternative); b) the high divorce rate, which in many cases takes one economically viable household unit and creates two household units, at least one of which is usually economically fragile (in most cases, the woman’s); c) the extremely skewed inequality of income and wealth in the U.S. – the top few percentiles on the income/wealth scale suck up so many disproportionate dollars (the top 1 percent of the population controls 43 percent of the nation’s financial wealth) that the rest of society is left with too few dollars to adequately cover life’s necessities; and d) the boom-and-bust economy we live in. The business cycles of today asymmetrically reward the very rich with tremendous windfall profits during booms and, likewise, asymmetrically punish the middle and lower socioeconomic classes during busts, leaving millions jobless, many without homes, health insurance, or adequate savings.
Tapping Into the Market The current mindset of boomers presents some potential opportunities, but beware of the pitfalls as well. Here are some things to take into consideration: • Insecurity over retirement – Boomers have been “doing the math” since the meltdown and, for most, it doesn’t look good. They are worried – to horrified about whether they can ever retire. To a certain extent, a reverse mortgage can be positioned as one of several tools to help them address this problem. • Employment angst – Most boomers in their mid-50s or so are not only concerned about their jobs – that is, if they are employed – but also worry about getting hired again should they lose their job. Boomers fear since they’re at the end of their prime earning years that they might never be able to make up for their losses in the stock and housing markets. • Institutional distrust – Coming off the meltdown I saw a tremendous wave of mistrust on the part of boomers directed toward “traditional institutions” – banks, Wall Street, big business, the real estate industry and government.
Many of the conditions spawned by the economic meltdown provide an opportunity for reverse mortgages to play the hero. But Seller Beware: Boomers have been overhyped and oversold for years. In the ’80s, it was all about the “good life.” In the ’90s, they watched their 401(k)s inflate with the tech boom and the so-called “productivity dividend” that would fuel the market for years, even decades. In the early 2000s, they were inundated with messages telling them what a paradise retirement will be while simultaneously having their pockets picked by near-usurious interest rates on their credit cards. Then we all hit the proverbial wall and reality set in.
Be honest, straightforward and discuss the pros and cons. If a reverse mortgage is not right for a potential customer, tell him or her so. You may lose that one sale, but it will be recovered in droves as the positive word of mouth circulates: “At last, someone we can trust!”