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Monday, May 23, 2011

Boomers Are Sitting Pretty For Retirement

What? When did this happen? I thought us “boomers” were going to be relegated to an existence of cat food and homelessness. I always get nervous when someone writes either a scare article or in this case a ‘feel good’ article. Most likely either side is only partially correct. 

I read an article over the weekend that states the average 401(k) balance for someone who has been in their current plan for at least 10 years and is 55 or older is $233,800.  I’m okay with that statistic.  The writer(Steve Butler) then assumes an average age of 60(in this example) and that said worker would have an additional five working years to accumulate additional assets.  Well, possibly.  Who’s to say that this person will want to or be allowed to continue working until age 65?

Butler also states, “The existing money has time to increase by 50 percent or more even if invested conservatively.” Huh? Who’s making those investment decisions, Warren Buffett?  Maybe I’m wrong but that seems like a pretty big reach in terms of what a person can reasonably expect to earn over a five year period.

Butler continues, “Then, five more years of $10,000 per year contributions (hopefully) should add another $50,000 plus interest.” Again, who is Butler referring to?

I congratulate anyone who can afford to contribute $10,000 per year to their retirement fund but I can only think of one individual that I know personally who could pull off that number.  Maybe I’m just running with the wrong crowd.

It gets better. “That's just the money in their current job's 401(k) plan. The average boomer has changed jobs at least seven times over a career. This means that there are IRA roll-over accounts sprinkled around town like deer droppings -- old 401(k) roll-overs that went to a variety of different financial institutions depending largely on what was convenient or automatic at the time of each job change.”

Really? I’m at the tail end of the boomer generation and I’ve had maybe seven or eight jobs in my life.  That’s including the part-time jobs I held while in college. News flash: At least half of these “jobs” did not offer 401(k) plans. I guess I need more deer droppings.

First of all, back in the good old days most employees had to wait for their employers ‘open’ enrollment period to enter into their 401(k) plans. If the average person has had seven jobs, how likely is it that they even stuck around long enough to enroll in the first place? It’s possible, but still I wonder.

My gut feeling is that if the current account balance is $233,800 it must be as a result of having already rolled over old 401(k) plans into the one where these people are now employed.  If you’ve been at your current employer’s company for at least ten years, even if you did contribute $10,000 or so each year(highly unlikely) I doubt that that would be enough for your balance to reach such a large number.  More likely fifteen years at a contribution rate of $10,000 per.  In addition, let us not forget the financial implications of both the dot-com bust of 2000-2001 or the sub-prime meltdown of 2008.

The section that really made me laugh is the following, “There is a good chance, then, that the ‘Boomer’ with almost $250,000 at their current job's 401(k) probably has another $250,000 in an IRA.”  Sure.

Alright now, who’s got my other $250,000 IRA account?

Seriously, I do have an IRA in addition to a 401(k) but it doesn’t have that kind of cash in it.  I’d better get going if I ever intend to retire like the folks Butler is referring to in this story.

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