Retirement Savings and the Baby Boomers

If you haven't been maxing out your retirement savings (401K, IRA, etc.), I suggest you watch this Frontline documentary. Increasingly, people with homes are relying completely on their houses for their retirement. Every financial economist will tell you that over the longterm, real estate, after you factor in home repairs and projects, lags a diversified investment portfolio. We know Social Security stipends will be less than what it is today, and that due to advances in medical science, life expectancy will increase. If you don't save today, while you are in prime earning years, you might have to work when you are in your late sixties or seventies.

So forget that extra iPod, the luxury car, the widescreen TV, or that expensive vacation to Europe :-) Give compound interest those extra years to works its magic. This personal finance book, from Harvard Law Professor and Bankruptcy expert Elizabeth Warren, provides a simple framework anyone can use to start saving towards retirement.

Make sure to also read the Washington Post transcript of an online chat with Hedrick Smith, the host of the documentary:

Trenton, N.J.: On the website Frontline has good resources for young workers. How has this program affected the many young workers who produced it? It's pretty sobering for all of us. Yet more and more have lots of credit card debt and it's really hard to get started on long term retirement now.

Hedrick Smith: Good question. Everyone who worked on the show was deeply sobered by what we found out. Rick Young, the producer, who's in his mid-40s, was constantly talking about how he was going to have to beef up his retirement savings. Typically when the production team comes in from a day of shooting and goes out to dinner, the tendency is to change the subject and talk about other things - sports, the war, family - and so forth. But this time, almost every night, the talk was about what we had learned that day and what the implications were for all of us individually and for the country as a whole.

Ogden, Utah: This is the most stark demonstration of the galactic gulf between the mega-wealthy and the former middle class. While the working-age employee may be far behind his CEO now, a lifestyle of reasonable health, leisure, family support, etc. is posible. But in retirement the same folks will become the impoverished, the prematurely ill (and then dead), and ultimately completely exploited Americans no one ever expected to know.

Hedrick Smith: Certainly, one of my biggest concerns coming away from 6 months of work on this topic is the radical inequality between people who are making more than $100,000 per year and moderate-income Americans who are making $40,000-$60,000. Obviously, they start out planning for retirement from very different levels. But what is more disturbing is the evidence that when they start to run their own 401(k) plans, the gap between them grows wider and wider very rapidly. According to a 50-year pension benefit consultant like Brooks Hamilton, who has studied the numbers in detail, most of the middle-income earners will not be able to accumulate enough money to finance their retirement - unless something radical is done to strengthen the 401(k) system to give them much more help in planning and managing their investments, and unless employer contributions are significantly increased.