The Baby Boomer Dilemma

The Baby Boomer Dilemma

by | Nov 6, 2023 | 401(k), Blog, Retirement, Wealth Management

Have you seen The Baby Boomer Dilemma movie yet?

(Watch the trailer here.)

It was released in theaters in October 2021 and is an Exposé of America’s Retirement Experiment that takes a deep dive into Pensions (both corporate and public,) Social Security, and 401(k)s.

The sequel, The Retirement Deception, will be available later this month. It will be distributed through movie producers, such as myself. The movie is filled with real life stories of both retirement devastation and retirement success depending on how you plan for your golden years. (Watch The Retirement Deception trailer here.)

The Baby Boomer Dilemma uncovers startling data and information about the financial demise of American Baby Boomers.

In retirement, Baby Boomers are likely to:

  • Lower their standard of living
  • Pay taxes on 85% of their Social Security Benefits
  • Lose money in market crashes
  • Run out of money
  • Experience a long-term care event

Defined Benefit Plans

Defined Benefit Plans are pension plans. Until the 1980s, most companies offered a Defined Benefit Plan to their employees. Employers contributed money to an investment account earmarked to pay out a monthly distribution (benefit) to their retired employees.

The company hired pension fund managers to manage the investments inside the accounts. The pension fund managers were trained experienced investment advisors with a goal to grow the account as large as possible.

Money distributed to retired employees is pre-tax and is current year income on Form 1040.

Defined Contribution Plans

The Baby Boomer Dilemma shows how Defined Contribution Plans ramped up in the 1980s when tax code 401(k) was signed into law. Now, instead of employers setting aside money for their employees, employers set up 401(k) plans into which their employees make contributions for retirement.

Instead of trained investment pension fund advisors managing money for the employee’s benefit, individual employees are required to make decisions on how they want their money invested.

The government placed that responsibility squarely on the shoulders of the people least educated about saving money in investments.

Suddenly, individuals needed help managing their money. Financial advisors and their firms sprung up on every corner and in every small town in America.

What Do The Baby Boomer Dilemma Movie Experts Say?

David Babbel, PhD

Professor Emeritus of Business Economics and Public Policy and a Professor of Finance in the Wharton School, University of Pennsylvania

Baby Boomer Dilemma
David Babbel, PhD (David Babbel passed away on May 20, 2021 at age 72 from leukemia.)

“You give the burden of planning retirement and place it on the shoulders of the person who knows the least; I think it was a disaster.”

“You can’t afford when you’re retired to lose 70% of your money or 50% or even 25-30%. It can take a long time to make the money back. For instance, if you lose half your money, so say have $100,000. Now you have only $50,000. What kind of rate of return do you have to get to get back to $100,000? 100%! 100% of $50,000 is another $50,000. It’s darn hard to get a 50% rate of return let alone a 100% rate of return! It’s very rare.”

“The longevity risk is truly serious. You’ve typically had between one and 40 years to live and you don’t know which it is. If you knew how long you were going to live, I could come up with an easy mathematical formula and tell you exactly how you should invest your money. But you don’t know how long you’re going to and so it becomes tricky.”

Olivia Mitchell, PhD

Olivia Mitchell, PhD

International Foundation of Employee Benefit Plans, Professor of Business Economics and Public Policy, Professor of Insurance and Risk Management, Executive Director, Pension Research Council

“The biggest hole in the FinTech arena is on the Decumulation Phase. That is what happens to your money when you need to start paying yourself out. Where to take it from? What to take first, what to take second? What are the tax ramifications? It’s very complicated.”

Bill Sharp, PhD

Bill Sharp, PhD

STANCO25 Professor Emeritus of Finance, Standford University Graduate School of Business, 1990 Nobel Memorial Prize in Economic Sciences

“Decumulation is the most confusing and most complicated problem that there is and there’s no simple answers. Plus, you’ve got the uncertainty about your longevity. So, in addition to the uncertainty about what the markets are going to do, you have uncertainty as to how long you’re going to need to be financed. And then those sources of uncertainty obviously can interact, depending on how you’ve chosen to match your retirement. So it’s pretty complex.”

Moshe Melevsky

Moshe Milevsky

Professor of Finance at the Schulich School of Business at York University, Member of the Graduate Faculty in the Department of Mathematics and Statistics, Executive Director of the Individual Finance and Insurance Decisions Center, Fields Institute Follow in 2002

“One of the important things for people to understand is how to measure wealth at retirement. They’re looking at the wrong number. They measure wealth at retirement by the size of the account, how much money is in the defined contribution plan. How much money is in the 401k plan. That is not the true measure of wealth when it comes to generating an income in retirement.”

“And what’s been happening over the last few years is yes, our accounts have been growing. It looks like we’re getting wealthier, but the income that we can get from that sum of money is shrinking.”

Ted Benna

Ted Benna

“Father of the 401k”

“I’m really concerned about anyone retiring, now and in the next few years, being overly committed to risky investments, because we clearly, at some point here, are going to have another 2008.”

“If we have a downturn when people, who in their first year or two of retirement, take a 15%, 20%, 25%, or 30% loss, it’s impossible for them to recover. It just can’t happen.”

Tom Hegna

Tom Hegna

Retirement Expert, Author, Speaker

“For decades, the financial advisors all focused on accumulating assets. You think about it in the 1980s. The Baby Boomers were in their 40s and 50s. And they’re still trying to accumulate wealth. But now, retirement is so much different, and the advisors need to shift to become income experts and retirement income experts and risk managers.”

“A lot of people think the riskiest time to invest their money is like when they’re 87. And the truth is, the riskiest time is when you’re 57 or 67. The one time in your life when you don’t want to lose money is right before or right after retirement, because if you lose money in that time frame, it can devastate your entire retirement.”

Are There Solutions?

Yes, there are solutions!! The solutions challenge conventional financial wisdom, which is why most people “pooh-pooh” the solutions.

In part two of The Baby Boomer Dilemma, the financial experts discuss solutions; solutions my practice offers. Reach out if you have an inquiring mind and want to know how to solve your Retirement Dilemma.

1 Comment

  1. Bill Barnett

    Hi Judy, been a while. Interesting read. I would love to pick your brain, discover new solutions. Up for a conversation?


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