Jason
Lee thought he had his life and his future figured out. He worked as a research
assistant at the Library of Congress. He loved his work, pursued a passionate
interest in World War I aviation history, spent his off days at the Air and
Space Museum, and planned vacations to visit various collections of vintage
aircraft, private and public, around the world. He had a lot of friends who
shared his interest, but at age forty-five considered himself a confirmed
bachelor. He didn’t spend lavishly, but he indulged his hobby without restraint.
Why not? he figured: He was going to support himself for the rest of his life.
Love intervened. On a visit to the Old Rhinebeck Aerodrome in upstate New York,
he met a woman whose father was a collector and piloted one of the vintage
aircraft that flew in the show. Six months later, they were married.
(Continued below ...)
Jason gave up his job at the Library of Congress, moved to Rhinebeck, and
secured a job as a librarian at the local high school. His wife, Alicia, was a
widow who had received a $100,000 insurance settlement on her first husband’s
passing five years earlier. She’d invested wisely but, since receiving the
money, had only worked part time at the aerodrome’s museum in the summer and
doing freelance aircraft restoration consulting the rest of the time. Exclusive
of returns on her investments, she’d earned an average of a little more than
$24,000 per year for the previous five years. She was fairly frugal, traveled to
and from her home on a bicycle most days, and kept a 1992 Toyota Corolla around
for emergencies and winter days when she couldn’t ride. Her husband had been a
non-union carpenter, but had been good about putting a modest amount in his IRA
plan for each of the fifteen years he was married to Alicia. In total, he’d put
away $45,000. Alicia still owed $97,000 on the remaining eighteen years of the
thirty-year fixed mortgage they’d taken. Of that original $100,000 nest egg, she
had $48,000 in her investment portfolio and $16,000 in savings.
Since Jason had always figured that he’d only be supporting himself for his
entire life, he hadn’t been very good about contributing toward his retirement.
He’d designated a modest 5 percent of his income to his 401(k) plan at the LOC,
and when he left, he rolled over just shy of $30,000 into an IRA plan. He had no
other savings, had rented an apartment in the Georgetown area, used mass transit
exclusively, and, other than his extensive library and home computers, had few
other assets. His starting salary at the high school was $32,000, and based on
the terms of the current contract between the certified staff and the school
district, the most he could hope to earn with his master’s degree was $48,000.
Jason’s father, Adam, was one of my clients, and once his son got married, he
made sure that Jason and Alicia came to see me. I knew that Adam Lee had told
all his kids that when they turned sixty, they would each receive an incremental
gift (to avoid tax penalties) from each of their parents equal to the amount of
money that they had in their various retirement accounts. The remainder of his
parents’ money would go toward various charitable organizations. Adam wanted his
kids to learn some valuable lessons about saving, and though his plan may on
some levels sound harsh, if his kids saved, they’d be amply rewarded. Jason had
no problem with the arrangement his father had made; he simply had chosen not to
take full advantage of it.
When I first met the newlyweds, I asked them what their financial and
personal lifestyle goals were. They told me that they wanted to begin a family
as soon as possible. Jason had attended the University of Virginia, paying
out-of-state tuition, so he knew the high costs of a college education. They
frankly admitted they were scared about the future and their retirement. Jason
had never thought much about it because he figured he’d be okay living solo;
Alicia and her first husband had only begun to think about it when he was
diagnosed with cancer and their financial priorities radically shifted.
Alicia’s parents were struggling with their own retirement issues and weren’t
likely to be able to leave much for their two children. Because of the
arrangement the elder Lee had created, Jason and Alicia knew that they wouldn’t
starve, but Jason was determined to provide his kids with the kind of
educational opportunities that his father had—along with ensuring that they
would be debt-free upon graduation.
Fortunately, given the combination of Jason’s father’s future gift, their own
modest savings, and a history of frugality, we were able to put together a plan
that would make certain that the Lees’ future children would have their
educations paid for and the couple would be able to fund a secure
retirement—even though they would be enrolling their children in college at an
age when most of their Tail End Boomer peers were either within a few years of
retirement or would have already retired. While the Lees’ situation may differ
in its particulars, it shares many similarities with those of others of their
age group. And the lesson is clear: If you don’t plan early, you can still plan
smartly. I’ll talk more about the particulars of their plan in later chapters.
Today the largest generation to ever move toward retirement takes another
step in that direction. In the time required to read this sentence, another
Boomer turns fifty. That’s right: Every seven seconds of every day, another
Boomer reaches that milestone. Because our rate of progression into this age
group is unprecedented, and because we Boomers possess unique personality traits
and a conflicted relationship with our money, we face unique challenges and
opportunities as we plan for our financial future. We’re going to examine some
of these complicating personal factors in the pages that follow. Before we do
that, I need to make clear some points about how I use the term Baby Boomers.
Throughout this book, I’m going to use three ages to represent the broad
spectrum of Boomers.
- The first group I will use are those age fifty-five. Born in 1951, they
represent the heart of that generation, and thus I call them Core Boomers.
- The second group, those age forty-five, are what I call Tail End Boomers.
Born in 1961, they are representatives of the last of the “official” Boomer
generation.
- Thirty-five-year-olds are what I will refer to as Neo-Boomers. Because they
were born in 1971, they don’t fit into the traditional definition of Baby
Boomers—those born between the years 1944 and 1964. I include them because they
are now at a transitional point in their lives when they have outgrown the
Generation X label often placed on them and are in their prime earning years.
Like it or not, they share many of the same traits as their Boomer parents—thus
the name Neo-Boomers.
While all of these groups share common traits, the major difference in their
retirement-planning scenarios is time. Though it is obvious, it needs to be
stated: The more time you have before you retire, and the sooner you begin to
put money away for that eventuality, the better off you are. Also note that the
advice and recommendations covered in this book are applicable to the
generations that follow the Boomers as well.
Copyright © 2010 by Michael Farr
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