But … as Dr Somnath Basu points out in this article … “boomers are woefully unprepared for retirement.” Consumption outstrips savings across the board, with larger problems for lower earners (however, Social Security is designed to provide a larger safety net for them). Dr Basu states: “Obviously, this group of old boomers is totally clueless about what lies ahead for retirement.”
My two cents:
Most people during their working years view their finances through income and expenses. Human Capital is where this source of money comes from. However, what is the source of money for retirees? It is not Human Capital anymore (except for Social Security where current workers are paying into the program so those dollars can then pay retirees). The source of money for retirees from pensions (yes pensions) and savings is from Financial Capital. Financial Capital consists of money put to work in the capital markets through various investments.
Therefore, the source of money for retirees is not their income/expenses statement, but their balance sheet: Assets minus debt. In other words, what you OWN minus what you OWE equals NET WORTH.
Thus, because few focus on their balance sheet, few are prepared to fund their non-working years.
The theme for this year’s review is to update your retirement assessment. This fits right in with what this article, and many other research papers, say … time is running out for people to sustain their consumption patterns into retirement.
The alternative depends on a BIG IF … to continue to work IF health holds out.
Another BIG IF … IF your job is retained by your employer (getting a new job today is not as easy as it used to be in today’s economy).
Knowing how to proceed now is better than a big surprise later … it starts with a review of where you are and where you’re trying to go.