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Don't let fears delay planning

As older baby boomers near or enter retirement, many are so paralyzed by fears of poverty and distrust of financial advisers that they can't take the steps needed to secure their future, according to a report released recently by a California investment adviser.

Instead, they often rely on "magical thinking," where they hope that it will somehow all work out in the end, said Financial Engines, which interviewed more than 300 older boomers during the past three years.

It's understandable that early boomers, the oldest of whom turn 65 this year, are worried. Financial Engines calls them "accidental investors." They started careers expecting a pension, but now must rely on a 401(k) with a balance that hinges on how well they saved and invested. They've just been through a financial crisis that erased a large portion of their savings. And they have witnessed frauds involving major players in the financial industry.

But older boomers can take steps on their own to alleviate their fears of poverty. Many still retire at 62, the earliest age to take Social Security retirement benefits. But if they can remain on the job longer and delay Social Security, they could see much more income in old age.

Still, getting older boomers to take any action might be a challenge.

Financial Engines, which manages 401(k) accounts for nearly a half-million workers, found that many older workers avoid retirement decisions, even though they want to make them.

"People were trying to engage, but they weren't acting," said David Ramirez, a Financial Engines portfolio manager. "That's why we started to look at the emotions they had."

Fear of poverty in old age was high. Ramirez mentioned one woman who said she hoped she would not live past 85 because she didn't want to outlast her money.

Sometimes, the fears are legitimate.

"A lot didn't have more than $20,000 or $30,000 saved up" and were shocked when they saw the small size of Social Security benefits that would be available if they retired at 62, he said. Those taking benefits early receive one-quarter less than those who wait until 66, their full retirement age, because they collect checks for longer.

A basic way older boomers may improve their finances is by delaying retirement. Each year past age 66 that a worker defers collecting Social Security, annual benefits go up another 8 percent, until age 70.

"If you went out and asked people, 'How would you like an 8 percent return guaranteed on your investments next year?' they would say, 'Where do I sign up?' " said Christine Fahlund, senior financial planner for T. Rowe Price.

But Fahlund said working longer doesn't mean that boomers can't enjoy their 60s. She suggests they "practice retirement" while continuing to work. They can cut back on saving for retirement and instead use that money for vacations and other enjoyable things, she said. Workers still should contribute enough to a 401(k) to get an employer match, if there is one, she added.

The math, according to T. Rowe Price, works like this:

Take a couple of 60-year-olds with a combined income of $100,000 and savings of $500,000. They put away $15,000 annually for retirement. If they retire at 62, their annual income from Social Security and savings would be $51,800, or less than 52 percent of preretirement income. That's below the 75 percent figure generally recommended.

But let's say they continue working and postpone Social Security, but stop saving for retirement. If they retire at 66, annual income would be $67,900, or nearly 68 percent of their preretirement income. And because they weren't tapping their nest egg, the invested savings would have grown to $665,400.

The figures are more dramatic if they work until 70, when retirement income is 89 percent of their old earnings and their savings have climbed to $775,000.

This may not work for everyone. But it does show that if older boomers tackle financial issues, they might find solutions that suddenly make retirement less scary.

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