Baby Boomers - PDF by arslanoguz


									The Realities of Retirement

Are Baby Boomers Ready?


Confronting Reality— Retirement Solutions

Many boomers are concerned about how the realities of retirement will affect their long-term financial security. While some issues are under their control (i.e., how much they save for retirement), they have little or no say regarding issues such as rising medical costs, market downturns and inflation. Despite this, it’s imperative that their retirement plan takes into account all of the factors that could adversely affect their financial security. Regardless of whether you are nearing retirement or have recently left the workforce, there are actions you can take to improve the likelihood of a secure financial future. One important step is to make the most of your relationship with a financial advisor. An advisor can develop a comprehensive financial plan, answer specific questions regarding your retirement and periodically adjust your plan as your needs change.

spending. While boomers perceive that their expenses will decline once they leave the workforce, almost 70% of retirees said they now spent the same or more compared to when they worked.

Of those surveyed, 75% of retirees said they have a great deal of regret about how they spent their money when they consider how much additional money they could have saved. However, fewer than half of boomers wished they had saved more. On average, boomers believe they’ll need to save less than 10 times their current income for retirement. Given today’s life expectancy rates and prolonged retirements, they may need more income than they expect.

Most boomers appear to be underestimating their debt and many are headed into retirement owing more than previous generations. Reasons for this include the higher cost of homes, more expensive cars and the prevalent use of credit cards.

What Boomers Can Learn from Today’s Retirees
Our research shows that boomers can learn a great deal from today’s retirees. In fact, understanding how retirees live their lives in retirement can help boomers plan better. Consider the following:

Income Needs
Boomers’ expectations for life in retirement are higher than those of current retirees’ actual lifestyles. For example, while almost all boomers plan to travel in retirement, fewer retirees actually reported doing so. Retirees also spend more time doing less expensive activities than boomers expect they’ll do when they retire.

There is a significant gap between what boomers expect their retirement expenses will be, and what current retirees are actually

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Baby Boomers at the Crossroads
The largest segment of the American population— the baby boomer generation—is nearing a crossroads in their lives. It’s estimated that over the next 10 years, roughly two-thirds of the approximately 76 million baby boomers will reach retirement age. This will have a dramatic impact on both the U.S. economy and the financial future of baby boomers (boomers). While some boomers are financially secure, longer life expectancies, rising prices, uncertain Social Security benefits and insufficient savings leave many of them unprepared for the realities of retirement. On the following pages we’ll discuss some of the major issues facing boomers today and a series of action steps to help you make the most of your retirement years.

Boomers Contemplate Retirement
It is difficult to overstate the impact and repercussions of the boomer generation’s retirement. To better understand how this transition could affect boomers, OppenheimerFunds commissioned a study that included extensive interviews with over 1,000 pre-retiree boomers and retirees. These individuals were asked a wide range of questions regarding their financial goals, concerns and investment strategies. Many boomers have accumulated substantial wealth through hard work and disciplined saving and investing. They expect to engage in many activities during retirement. However, the activities boomers plan to undertake are often more expensive than activities currently pursued by existing retirees. In addition, a large number of survey participants expressed concern about their finances and how various scenarios could impact their ability to enjoy their chosen activities in retirement. Some of the expenses to consider are listed below.

More Years in Retirement
Life expectancy rates in the U.S. have steadily risen over the years. As a result, many people may live over 25% of their life outside of the workforce. In these cases, an extended retirement must be adequately financed so that a person doesn’t outlive his or her savings.

Longer Lives Equal Longer Retirements
Life expectancy at age: 65 is 83 70 is 85 75 is 87 80 is 89 Years out of the workforce
(if retirement begins at 65)

18 20 22 24

Source of data: National Center for Health Statistics, National Vital Statistics Reports, Volume 53, Number 6, 11/10/04.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

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Rising Healthcare Costs
While we may live longer lives, those extra years may not necessarily find us in good health. Medical science has made significant progress with life threatening diseases such as cancer, heart attacks and strokes. However, many diseases that could necessitate the need for extra medical attention or long-term care, such as Alzheimer’s, arthritis and osteoporosis remain. At the same time, long-term healthcare is becoming increasingly expensive. retirement, in reality, higher home prices, more expensive cars and prevalent credit card use may translate to more overall debt for this group when compared to current retirees. With this in mind, boomers should understand the negative impact debt may have on their retirement cash flow. It may make sense for boomers to refinance or downsize their homes and consolidate or pay down debt before they retire.

The End Result—Working Longer
Many boomers realize that the issues discussed here may mean they will have to work longer than current retirees. When asked at what age they think they’ll retire, only a small percentage of boomers said they would retire before age 60. In contrast, over half of retirees surveyed left the workforce before that age. We also learned that the majority of boomers say they’ll continue to have some form of employment after they “retire.” On the contrary, just a quarter of current retirees said they ever had to work during their retirement. Regardless of when they think they’ll retire, boomers may need to build a “contingency plan” in case they are unable to work as long as they expect.

Declining Social Security Benefits
Social Security and Medicare are under significant financial pressures. Fewer workers are contributing to Social Security versus those receiving benefits. At the same time, the number of retirees is projected to increase 70% by 2025.1 This means future Social Security recipients are likely to receive lower levels of benefits than current retirees.

Higher Debt
One of the most interesting pieces of information derived from our study was that boomers may underestimate the amount of debt they will have when they leave the workforce. Even current retirees, often perceived as the antidebt generation, carried a surprising amount of debt into retirement. While boomers expect to carry less debt into

1. Source of data: Time Magazine, 1/25/05.

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A Precarious Foundation
As many boomers reach retirement age, they will face a challenging time financially. Given longer life expectancies and a confluence of forces driving up the cost of retirement, boomers need to plan carefully to ensure they are financially prepared to support the lifestyle they desire. However, the findings of the research study indicate that many boomers are not preparing for retirement as well as they should and may not have the investment skills necessary to manage their money successfully.

A Lack of Planning
Another important issue confronting many boomers is their lack of financial planning. For example, setting a goal of how much money you need to accumulate before leaving the workforce is a key element of a retirement plan. Yet, very few boomers have taken this fundamental first step. The lack of planning doesn’t stop there—only half of the boomers we spoke with had a written financial plan. It was quite a surprise that 42% of boomers describe themselves as “very prepared” for retirement, but considering the lack of financial planning, it is likely that this group may be less prepared than they think.

Limited Investment Knowledge
It’s clear from these findings that unless many boomers make changes, it may be difficult for them to have the retirement they desire. Our survey revealed that a lot of boomers lack detailed investment knowledge. When asked how they would describe themselves as investors, over half of them said they were fair or poor investors and two-thirds said they didn’t enjoy investing. This could have serious consequences for their retirement security, especially for those investing on their own.

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Steps to Take with a Financial Advisor
Position yourself for long-term security. Take steps now to work with a trusted financial advisor as you pursue the steps listed below. They can help provide the foundation of a financial plan tailored to meet your goals.

1. Think about the lifestyle you anticipate in retirement. Then, work with your
advisor to estimate the real cost of retirement. The calculation should include the impact of inflation.

2. Consider how long you (and your spouse, if applicable) are likely to live in
retirement. Keep in mind that 50% of people live longer than the average life expectancy. Your financial plan should insure you don’t outlive your savings.

3. Together, with your financial advisor, calculate how much income you’ll be able
to draw from your accumulated assets during retirement once you’ve reached your accumulation goal. This may cause you to change the total amount you need to put aside before you retire.

4. Develop an asset allocation plan that accounts for rebalancing your portfolio
when you stop working in order to meet your retirement income needs.

5. Schedule regular portfolio reviews with your advisor to monitor your progress
and modify your financial profile, if necessary. In doing so, you will maintain a plan that is consistent with your goals.

Before investing in any of the Oppenheimer funds, investors should carefully consider a fund’s investment objectives, risks, charges and expenses. Fund prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, calling us at 1.800.525.7048 or visiting our website at Read prospectuses carefully before investing.
Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008 ©Copyright 2005 OppenheimerFunds Distributor, Inc. All rights reserved.

CC0000.112.0205 April 8, 2005


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