THE OLDEST baby boomers turn 56 this year, and for this age-defiant generation that means retirement is no longer far off.
Some money experts say boomers, those born between 1946 and 1964, will enjoy a financially better retirement than today's retirees. Others, noting surveys of dismal savings among boomers, are less optimistic. But one thing they do agree on: Boomers' retirement won't be their parents' retirement.
"They redefined everything. It's safe to say they will redefine retirement, too," said Clare Hushbeck, a labor economist with AARP in Washington.
As retirees, boomers are expected to live longer and be more active than their parents. And unlike the previous generation that often relies on pensions and increasing Social Security benefits, boomers will find their retirement income largely determined by workplace plans under their control and their personal savings and investments.
Boomers, and even those younger, have been hit on the head with warnings that their retirement fate is up to them rather than an employer or the government. Even so, many boomers have vague ideas of how much they will need for retirement and how to reach that goal, experts say.
Even worse, many hold misperceptions about retirement that could backfire on them, experts said. Here are common mistakes:
Overestimating investment returns.
"They are unduly influenced by what happened in the late 1990s," when 20 percent-plus returns were a regular occurrence in the stock market, said Marvin Burt, a Rockville financial planner.
The past two years of negative market returns have been sobering, but not enough to bring expectations back to reality, he said. "Instead of assuming they are going to get 20 to 25 percent, investors now may be thinking of getting 15 percent ... which is still absurdly high," Burt said.
The historical return for the stock market is about 10 percent to 12 percent. But as investors near retirement, they tend to adopt a more diversified, conservative portfolio, adding cash and bonds with even lower returns. When creating a retirement plan, Burt figures a 6 percent to 8 percent return.
Inflated expectations about returns can lead to overblown withdrawals that can empty a nest egg quickly, said Barry Glassman, a financial planner in McLean, Va.
Boomers may figure they will earn 10 percent a year on their portfolio, and, therefore, will be able to withdraw 7 percent annually in retirement, he said. "It works great if you always earn 10," he said.
But it's also possible that the portfolio could lose 10 percent, and a 7 percent withdrawal on top of that could reduce a $1 million portfolio to $830,000 in a single year.
Glassman suggests an initial withdrawal rate of 5 percent or less, and making adjustments up or down later depending on the portfolio's performance.
Changing living expenses.
For years, the rule of thumb has been that workers will need 70 percent to 80 percent of their pre-retirement income to maintain their current lifestyle in retirement.
"Most people we see are retiring to an active lifestyle ... spending as much money as before," said Lyle K. Benson, a Towson financial planner. Expenses tend to drop as retirees become less active in later years, and then costs pick up again as health problems rise, he said.
Expecting too much from Social Security.
Most people are unaware of what their Social Security benefit will be and assume it will be enough to live on, said Pat Humphlett, program director for the Women's Institute for a Secure Retirement in Washington.
For the average worker, the benefit replaces 40 percent of their income. "You need more than that to maintain your current lifestyle if you retire," Humphlett said.
The Social Security Administration mails a benefits statement to workers 25 and older a few months before their birthdays. If you haven't received an estimate, you can request one online at www.ssa.gov or by calling 1-800- 772-1213.
The majority of people retire at age 62, but boomers may find that they must work three to five years longer, Hushbeck said. Of course, more boomers have come to this realization in the past year and a half when they opened up 401(k) statements and found their balances ravaged by falling stock prices, she said.
For many, the best way to make up for a shortfall in a nest egg is to remain in the work force. "If there's any doubt if you can afford to retire, don't," she said.
"There is still a feeling out there on the part of a lot of people that someone else will take care of them and they don't have to take care of themselves so much in retirement," said Randy Scritchfield, a financial planner in Damascus. A survey of baby boomers last year found that more than 56 percent of women said they are relying on a husband, an inheritance or a stock market windfall for their retirement, he said. But inheritances and a market boom can't be counted on, and a spouse may die or a couple may divorce.