The defined contribution model is complicated for many baby boomers because it requires the participant to make plan and investment decisions instead of leaving those judgments to the employer, says Alan Glickstein, senior retirement consultant of Towers Watson. Without strong financial expertise, some baby boomers are unsure of how much to contribute and where.

“It’s much harder to make a decision about how I should invest my money, especially in the environment we’re all living through right now,” Glickstein says. “How much should I put in stocks, should I put some into bonds, should I invest internationally, how often should I change—those are paralyzing thoughts for most of us because we’re not investment professionals. Even if we are, when it comes to our own money, there’s an emotional connection that’s different than when we’re dealing with someone else’s money.”

Health care is another issue that is causing many baby boomers to delay retirement, Glickstein adds, especially for those who are under the age of 65 and not yet eligible for Medicare. For pre-Medicare retirees, although 80 percent of employers offer a pre-Medicare subsidy, 51 percent of those employers have a subsidy cap, according to the Retiree Health Survey, conducted jointly by Towers Watson and the International Society of Certified Employee Benefit Specialists. Sixty-three percent of respondents report that 2011 plan costs surpassed the cap, and another 15 percent of respondents believe those costs will top the cap within two years.

“Health care costs are rapidly increasing at such a high rate that they’re squeezing out available money for all other sources of funding for employee benefits and compensation,” Glickstein says. “For many employers, as they struggle to keep up with health care costs, they have very little money left over for wage increases and richer benefits in other areas, so it has a huge impact directly and indirectly on the finances of baby boomers.”

The other problem with health care relates to the financial challenges with Medicare, Davis says. The baby boomer generation, which happens to include a large portion of the population, is starting to become eligible for Medicare. Because health insurance is becoming so expensive, more baby boomers are expected to rely on Medicare, and that is placing a great deal of stress on the program.

“The problem with Medicare is happening now,” Davis says. “Medicare is scheduled to get into severe financial distress within 10 years rather than the 20 or 30 when Social Security will be in trouble.”

Many baby boomers are also having trouble retiring, Davis says, because their spending was focused on immediate needs. Rather than saving for retirement, much of baby boomers’ funds went toward houses, cars and their children’s education, he says, and that has put many baby boomers in a financial hole.

“As a generation, we have not done a good enough job putting off our immediate desires in exchange for trying to satisfy our retirement in the long term. I think it’s human nature, and we’ve fallen victim to it.”

Of course, retirement dreams have not been devastated for all, and for the baby boomers who are successfully retiring, Davis finds their lack of debt plays a large role. Mortgages, credit card debt and car loans can all be a large hindrance from retirement.

“People assumed they’d have their house paid off by the time they turned 65, but you’re finding a lot of people for whom that’s not even close to being true,” Davis says. “The baby boomers are pumping an awful lot of money into paying down their debt. I wish there was an easy solution to achieving retirement, but I think that’s a big one.”

How one boomer met his retirement goals

In the case of former architect Roy Serafion Davin, 64, having no debt was the primary reason he could retire in 2010. When Davin first entered the job market after graduating with a degree in architecture from California Polytechnic State University, San Luis Obispo, in 1975, the economy was much like it is today, he says. Davin lived in Albuquerque, N.M., at the time, and architecture opportunities were bare, but he accepted whatever jobs he could within the trade.

“I would get a little drafting job here, a construction job there,” Davin says. “Times were tough like right now, and I just did whatever I could to stay within the building trades.”

With each job that came Davin’s way, he put away as much money as he could and lived within his means, he says. Davin didn’t spend his money on big vacations or fancy cars. Instead, Davin invested in his future, and although he never had access to employer-sponsored retirement plans like most baby boomers, he found himself in a place to retire when many in his generation cannot.

After nearly 17 years of taking on sporadic building projects, Davin landed a job during the spring crunch with a local architecture firm and was able to gain enough architecture intern experience to pass the national boards, he says. Once Davin became a licensed architect, his design architecture career took off, and he began to invest in real estate properties of his own.

Davin began building houses and eventually constructed one in Durango, Colo., where he now resides. With each property, Davin would build the house and then sell it after three to five years to fund another house. This allowed Davin to live without worrying about a mortgage, he says.

“Even though my current house has depreciated, it’s only lost a lot of value when you look at it in respect to how it was inflating five or six years ago,” Davin says. “If I look at what I could sell this house for right now, I’m still selling it at a profit for the sweat equity I put into it. This is a desirable part of the country to reside, and I have no doubt that it’ll sell pretty quickly if I want to put it on the market. I don’t intend to do that until the savings I have are down to perhaps 30-40 percent of what’s there. Then, I’ll go ahead and sell it because I have another house in another part of the country.”

In 2010, Davin decided to retire.

“When 2010 came up and things started going bad, I knew the next job I had lined up was not going to happen, but I really didn’t do anything about it,” Davin says. “Back in the ‘80s, I would have gone out and shoveled snow off of a roof or taken anything, but by that time I’m in my 60s, I’m not going to take any chances with my health. I’m not as agile as I used to be.”

Davin still carefully watches his money even as a retiree with no mortgage, he says. Along with Davin’s savings, he now draws from Social Security and has kept up with his conservative spending style that allowed him to reach retirement.

Reaching retirement in the future

How the economy reacts over the next couple of years certainly has an impact on baby boomers’ future retirement plans, Glickstein says. With the current economic status, many baby boomers are just thankful to have a job. Glickstein believes the recovery process could be a slow one with many ups and downs. That instability could keep many baby boomers in the work force, but if the economy begins to improve at a consistent rate, Glickstein expects attitudes to change.

“If the markets are doing much better, unemployment is down, interest rates are up and people are actually earning money again, I think we’ll see a dramatic shift in perception on risk and retirement,” Glickstein says. “History has shown us it happens. We remember the past, but our memories fade, and there is a much greater focus on the current situation.”

To help baby boomers reach their retirement goals, more employers are beginning to look at phased retirement models, Glickstein says. Many baby boomers are physically or mentally ready to retire, but they can’t get by without that regular paycheck. Phased retirement offers those baby boomers a plan to work reduced hours while they financially prepare for retirement.

“We’re seeing a lot more flexible work arrangements where people are phasing down their work load,” Glickstein says. “It makes retirement more of a process than an event. ”

Moving forward, Glickstein does not expect to see one defined path to retirement. Entering retirement is an individualized decision, and there are still many questions left unanswered regarding the economy. While some baby boomers are not financially prepared for retirement, some made the right investments and are ready to leave the work force. But then there are other baby boomers who may stay in the work force because they can physically work longer than previous generations and enjoy the mental stimulation. There is no one easy retirement prediction.

“I don’t think we’ll see one prevalent answer,” Glickstein says. “It’s individually based, which is what defined the baby boomer generation to begin with, and that’s why it’s so important they get good advice and understand what their employer offers because one size definitely doesn’t fit all.”

Amanda McGrory is a staff writer for Benefits Selling. She can be reached at [email protected].

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