This huge population explosion changed the way we've come to think about retirement. Many of the safety nets that were in place for previous generations disappeared as the boomers neared retirement. A new income-generating strategy was needed, one that was very different from that of the boomers' parents.
In this article, we'll review some of the reasons that retirement planning has shifted focus and discuss one possible solution. (For more on the changing face of retirement, read The Generation Gap.)
Improvements in healthcare and lifestyle mean baby boomers who reach 60 in 2007 can expect to live an average of another 22.5 years. In some cases, retirement could last four decades or more. This longer life expectancy means retirement income must last longer than for any previous generation. With the increase in cost of living, boomers and those that come after them will likely need to save more than any previous generation to finance retirement.
Compounding this situation is inflation, which has averaged about 3% per year in recent years. (in the recession of 2008 and 2009, the inflation rate in both the U.S. and Canada has fallen below 2%.) What you could buy for $100 in 2004 costs $108 in 2007. (To keep inflation from whittling away at your savings, read Curbing The Effects Of Inflation.)