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Boomers' Retirement Expectations Don't Meet Reality

NEW YORK-Millions of Baby Boomers in their 50s are woefully unprepared for retirement, but it's not too late to convince them to start planning.

"Boomers need to manage their savings to create a dependable income stream," said Lynn Ford, senior vice president and managing director of the retail retirement group at Wachovia. "They will need a lot of advice from the financial services industry. We need to be better prepared to offer advice about the products we deliver."

Many 55-year-olds haven't started building the bulk of their savings and vastly underestimate how far their savings will stretch, said Suzanne Priebatsch, senior vice president and wealth management financial adviser at Smith Barney, last week at a conference titled "Market and Product Development in Retirement Services," hosted by Marcus Evans.

"Forty percent of Americans near retirement lack the ability to replace more than half their income," said Bill Feldmaier, director of distribution and strategy for retirement services at Comerica Bank. "The average investor is thinking, How am I going to pay my bills this week,' not, When am I going to retire?'"

Despite this lack of preparation, many investors are still assuming they will retire at age 65 and withdraw 10% of their savings every year, Priebatsch said.

"We have a serious problem with assumptions," she said.

A much more realistic withdrawal rate is between 4% to 6% a year. If you want to withdraw $50,000 a year, you will need $1 million in savings, she said.

Even a million dollars doesn't stretch as far as it used to. Priebatsch said she recommends her clients take a trip to England to see how inflation can diminish the value of their savings. For example, she said a sandwich that would cost $5 in the U.S. ends up costing $15 in England, when you factor in the exchange rate. It gives a whole new meaning to the term "mind the gap," she said, referring to the famous warning on the London subway system.

Investors should "mind the gap" in accumulation of assets versus their ability to maintain their standard of living, she said.

"Boomers have high expectations for retirement," said Elizabeth Butler, director of IRA and income planning product management at Merrill Lynch. "The key is to manage their expectations."

Butler said 70% of high-net-worth investors are dissatisfied with their financial adviser. Dissatisfied clients have an average of 17 or fewer contacts with their adviser in a year, while satisfied clients have an average of more than 28 contacts.

Sixty-five percent of U.S. millionaires are over the age of 55 and will transfer trillions of dollars in wealth in the next few decades, she said. Providers can take advantage of dissatisfaction to capture more assets.

But not everyone approaching retirement will be as prepared, she said.

Many Boomers expect to work longer and will be carrying debt into retirement, Butler said, but this isn't realistic. "There are not going to be enough jobs for 90-year-olds who can't afford to retire," Feldmaier said.

For older investors who no longer have the luxury of time, there are still ways to keep them from being penniless when they're too old to work, but they'll need to act quickly and visit with a financial planner.

First, they'll need to start saving as much as possible by cutting back on expenses and paying off any debt. They can also save more by working longer.

Some retirees may be relying on payments from Social Security, but many fear the 78 million Boomers will break the system. In the next 10 years, 50 million Boomers are expected to retire. If they can afford to, a retiree can defer Social Security benefits for a few years to increase their future benefit amount.

"Longevity should be a blessing, but it could be a curse, not just to the Boomer generation but to the generation below it," Priebatsch said.

By 2025, 32 states will have the same demographics that Florida has now, said Bryan Hodgens, senior vice president and director of sales of the retirement and investment products group at Wachovia.

"We can solve this crisis fairly easily by either raising taxes on the workforce or extending the age at which people can draw benefits," Hodgens said. "It's easy to say, but hard to implement."

The benefit withdrawal age has already been raised de facto, said Donald Mazzella, chief operating officer for He said 34% of Americans age 65 did not draw retirement last year in order to get a higher payment in the future. Rising healthcare costs are another expense that will be very hard for Americans to absorb, Hodgens said.

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