America's big spenders -- more than 70 million baby boomers -- may be on their way to becoming America's big savers. If you are a baby boomer -- anywhere from 30 to 50 years old -- you are changing your attitudes toward money. You may not be ready to junk the BMW and sell the summer home. Yet, you are sobered by the recession, job losses and lower incomes, and you may be blocked in career advancement by the older generation. You are beginning to wonder who will take care of you in your old age.
Boomer-watchers say you consider the Social Security system unstable and expect the Medicare trust fund to be bankrupt by the year 2011, when the first of you turn 65. What can you depend on? It's not likely your children or your pension plan. Not Social Security and Medicare. You're on your own.
To avoid the poorhouse in the next century, baby boomers must take action now, says American Demographics magazine. That may be easier than it sounds due to the time value of money. Even if you already are approaching 50, it's still possible for you to build a sizable nest egg.
"Fiscal fitness is the trend, and this generation knows that to continue their lifestyles into retirement will require planning, saving and investing today," says John Gummere, chairman of Phoenix Mutual Life Insurance Company. Phoenix, which sells life insurance, mutual funds, pension products and other financial services, recently released results of a study of baby boomers, as part of its campaign to help the boomer generation (it's a trillion-dollar market) plan for retirement.
Conventional wisdom says a young person should accumulate savings to buy a home, then to educate the children and finally, when the children are on their own, begin saving for retirement. As in other matters, the baby boomers are rejecting DTC "conventional wisdom."
The new attitude is: pay yourself first. From the beginning of your career, put retirement planning at the top of the list. The reasoning is unassailable. The earlier you begin, the larger your retirement fund. Fairly small amounts saved regularly grow rapidly when interest is compounded, and the growth accelerates over long periods of time. That's the power of compound interest.
If you think of the baby boomers as wastrels, think again. The Phoenix survey, conducted by the Gallup Organization, indicates that almost nine in 10 already have started their planning for retirement. Although those surveyed have family incomes of $30,000 or more, the major concern of more than half is "Will I have enough money to live on and to enjoy myself?"
Three out of five of those surveyed want to retire before they are 65, almost one-third by the time they're 55. Only 5 percent want to work after 65. For most of you, such aspirations are unrealistic. While 90 percent of those in the survey have retirement accounts or investments other than Social Security, thesesources will leave a retirement gap as high as 40 percent, Phoenix reports.
Three out of four said they had begun initial retirement planning, and 88 percent said they had started their financial planning at an average age of 30. Still, if they reach their desired retirement incomegoals, it is apparent that most will need to increase their savings.
Many admitted they could save more if they wanted to -- from $100 to $500 per month. Suppose, says Phoenix in its booklet "Self-Security," you invest $2,000 every year until age 65. Assume an interest rate of 8 percent, compounded. If you begin at age 50, you'll end up with $58,649. If you start at age 30, your nest egg will be $372,204. But, by beginning your savings plan at age 25, you will end up with a whopping return of $559,562. Your total investment over 40 years: $80,000.
There are many conservative investments that provide the benefit of compounding without any action on your part, including certificates of deposit and most mutual funds. Many corporate dividend reinvestment programs achieve the same goal, without brokerage fees. All U.S. Government Series EE bonds and some corporate and municipal bonds ( zero coupon bonds ) have automatic compounding built in.
Baby boomers " understand clearly what they want for the future and how they'll have to save and invest it for themselves," says Gummere,Phoenix chairman.
The rest of you? What are you waiting for?