High interest savings key part of Baby Boomer retirement recovery tactics

by Jim Sloan

A new study from AARP finds that Americans age 50 and over are pessimistic about their prospects for a comfortable retirement but are taking steps to make up for the withering losses they endured during the Great Recession.

More than 5,000 Americans were interviewed for the AARP Public Policy Institute report, which found that many people were financially strapped due to increasing health care costs, declining home values, shrinking pensions and languid investments.

Four key findings:

  1. Nearly 25 percent of those surveyed drained savings accounts.
  2. More than 35 percent of respondents stopped or cut back on retirement savings accounts in order to pay bills.
  3. Half surveyed delayed getting needed medical or dental care due to financial problems, and one in eight respondents lost health insurance altogether.
  4. Two thirds of those who began collecting Social Security retirement benefits did so earlier than expected.

5 steps to recover recession losses

The AARP study comes in the wake of other recent studies showing that people on the verge of retirement are paralyzed with fear about their prospects, are worried about running out of money, or are living in poverty.

A recent study from Financial Engines, a California investments advisor that manages 401(k) accounts for nearly 500,000 U.S. workers, found that the oldest baby boomers are fearful and indecisive about retirement, but the AARP study found that more than half of older Americans are taking one or more of these five steps to recover from recession losses:

  1. 44.1 percent said they would continue working part-time in retirement.
  2. 33.4 percent said they would delay retirement.
  3. 38.7 percent said they are paying down debt.
  4. 35 percent are shifting to less-risky investments, such as a certificate of deposit or a money market account.
  5. 22.5 percent said they were focusing on paying off their mortgage, which is often one of a family's biggest investments.

What else can they do?

The best way older boomers can ease fears of poverty, inflation and the costs of long-term care is by staying in the workforce and putting off taking Social Security benefits. Those who take benefits at 62 years of age get 25 percent less than those who wait until age 66. And after age 66, annual benefits go up about 8 percent a year until age 70.

Working longer also allows future retirees to add to savings, and continue to take advantage of employer 401(k) matching funds. For example, a couple with a combined income of $100,000 that has $500,000 in savings at the age of 60 will have a retirement income of 89 percent of their old earnings and a savings account with $775,000 in it, if they work another 10 years.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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