Will Worried Boomers Turn To The Markets In Order To Bolster Their Retirement Hopes?

An interesting article (link below) hit WSJ.com yesterday that highlights the plight of many of the "401(k) generation" who are now quickly approaching retirement age.

According to the article (which references data obtained by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College), many baby boomers simply do not have enough money to retire. The article points out that even after counting Social Security and pensions/savings, "most 401(k) participants appear to have insufficient savings".

There are a number of reasons for this shortfall. To start, many portfolios have been hit hard by the 2000-2002 and 2007-2009 market downturns. The WSJ points out that many people were "over-invested" in stocks during both of these downturns, and their portfolios suffered greatly as a result. To make matters worse - a large number of people bailed from the markets during its darkest days in 2008-2009 and missed the near-doubling of the major market indexes that has taken place since then.

In addition, many people nearing retirement age have underestimated the amount of money that it will take for them to comfortably retire. This has resulted in many boomers being forced to make significant lifestyle changes (selling their home and moving into a condo, cutting expenses, etc) and making plans to continue working past the age of 65.

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Despite the fact that many boomers were torched by the two market collapses over the past decade, you can't help but wonder if they won't pile back into the markets now in a last-ditch effort to salvage their retirement plans.

Sure, you would think that people would have learned from their past mistakes, but fear is a powerfully motivating factor. Many boomers are just hitting retirement age or are very close to it, and many are coming to the realization that they are going to have to significantly change their retirement plans at the very least, or consider working well past the age of 65 at the very worst.

The NASDAQ and S+P 500 have both doubled off of their March 2009 lows, while the DJIA is just a little under 500 points from doubling as well.

The markets have seemingly closed higher every day for the past 4-5 months, and this fact is certainly not lost on those who are very close to retirement age but don't have the necessary savings required to fund their preferred retirement lifestyles.

Given all of this information, you have to wonder how many of these people are just going to throw a Hail Mary pass and plunge all of their savings back into the markets, hoping that the markets continue to perform as they have over the past two years.

Given the level of desperation that many boomers are feeling right now, I wouldn't be surprised if this type of mindset is much more prevalent than many people think.

Source: WSJ.com - Retiring Boomers Find 401(k) Plans Fall Short

Filed under: General Knowledge