3 Shocking Reasons Why There’s a Baby Boomers Retirement Crisis
I recently surprised my wife with a tennis birthday trip to Key Biscayune, FL. While relaxing by the pool, I read an article from the Wall Street Journal titled, “Time Bomb Looms for Aging America” which opened my eyes to the baby boomers retirement crisis my parents generation are facing. (Before you chastise me, I did other fun things besides reading!!)
Research and multiple studies show that this is the FIRST generation that is unprepared for retirement.
What amazed me about this generation was that many were still struggling with:
- Low incomes
- Paltry savings
Before we hash this out together, let’s start off with few boomer facts.
Baby Boomers Stats
Baby boomers, or those born between 1946 and 1964, are one of the greatest generations ever. When WWII soldiers returned and settled down, they created a population boom that we now call the baby boomer generation today.
My grandfather Frank was a paratrooper in the National Guard who returned to Louisiana and had seven kids (including my dad). Both my grandfather and his brother (had nine kids) started Star Hardware in the early 1940’s and is still thriving today.
Studies show that over 50% of baby boomers have less than half the assets they hope to have in retirement. That equals around 15 million U.S. households.
The average household aged 56 to 61 has just $163,577 set aside for their retirement, according to the Economic Policy Institute — but that’s not much to look forward to while trying to enjoy our golden years on, especially if we follow the well-established 4% rule.
How would you like to live off of $545.25 per month? Exciting right? If we apply a 4% withdrawal rate to that average savings amount above ($163,577), then we’d only be producing just $6,543 in annual income.
So what can we do in order to avoid ending up like “the norm?” Let’s take a look at the 3 reasons why boomers aren’t retiring and vow to do the opposite.
3 Shocking Reasons Why There’s a Baby Boomers Retirement Crisis
While researching information for this post, I had no idea boomers would be affected so deeply with debt. When I think about debt, I think about my previous student loan days (Ugh) and could NEVER imagine carrying any type of debt into retirement. Well, think again.
According to the Employee Benefit Research Institute, the percentage of families with any debt headed by people 55+ has risen steadily for more than two decades, to 68% in 2016 from 54% in 1992.
Here’s how the New York Federal Reserve’s data breaks the debt down from Americans aged 60-69 in 2017:
Total Debt: 2 Trillion
Car Loans: 168 Billion
Here’s something that really blew me away. Student loan debt for this category was 6x more than back in 2004.
Can you imagine being 65 years old still carrying student loan debt?
I can’t tell you how many “financial forums” for high-income professionals advise paying minimums on student loans and focus on investing instead.
I don’t know about you, but my philosophy was and still is to pay off ALL student loans within 3-5 years upon graduation.
2. Paltry Savings
An increasing percentage of baby boomers and seniors are nearing retirement age with no savings. A recent survey found that 29 percent of adults ages 55 and older said they have $0 saved in 2017.
(Source: In a study by Go Banking Rates, it was found that 1 in 4 Boomers have $0 saved for retirement.)
Among those who are saving for retirement, a significant portion doesn’t have enough set aside for a comfortable retirement:
- Less than half of adults ages 55 and older have more than $50,000 saved.
- Only 22 percent of baby boomers ages 55-64 have $300,000 or more saved.
- About 1 in 3 (29%) seniors 65 and older have $0 saved for retirement.
One reason such a large percentage of boomers and seniors have little saved is because some are relying on pension payments. The Insured Retirement Institute (IRI) found that one in four boomers expects to receive a pension in retirement. Why? Well many of their parents, who most retired before 1990, had a defined benefit plan from their employers.
Over 60% expect Social Security to be a major source of income in retirement too. Also, roughly 70 percent of boomers are confident they can live solely off Social Security if they deplete their own savings.
But due to the fact that both living expenses and healthcare costs are steadily on the rise, Social (In)Security has NOT kept up the pace with either of them.
In a best-case scenario, Social Security will replace about 40% of the typical worker’s pre-retirement income. If that’s the case, where is the other 60% supposed to come from?
The problem, of course, is that Social Security was never designed to sustain retirees in the absence of outside income. And if more workers don’t come to terms with that, they’ll continue to put their retirement at risk.
The bottom line: Baby Boomers will need roughly $650,000 in their retirement plans to fund their retirement 100%.
Unfortunately, the average 65-year-old couple has only $263,000 saved. Some assume that that amount is enough to squeak by on while factoring in Social Security.
But the average Social Security recipient today collects just over $1,400 a month in benefits, which translates into just under $17,000 per year.
However, the medical costs for that same 65-year-old couple are estimated to be $220,000, and you can see why so many see a crisis on the horizon.
3. Clueless About Investing Basics
More and more Americans are retiring, but so few understand basic facts and strategies when it comes to ensuring that their retirement is doable.
For starters, many lack a solid written retirement plan. Most boomers NEVER address the basics before retiring:
- How much money they will likely have in retirement
- How much they need to live on
- How much they can safely withdraw from their accounts based on their life expectancy
Boomers are also unaware of some simple strategies they could make that would increase their income in retirement.
- Working a few years longer past their planned retirement date
- Delay claiming Social Security benefits for 2-3 years. (They’ll get an extra 8% for every year they wait to claim until age 70.)
Proverbs 20:29 “The glory of young men is their strength, but the splendor of old men is their gray hair.”
Yes, I know that nobody except the Man “Upstairs” knows when our number is going to be called, but, many boomers underestimate how long the typical retiree will live.
That’s a huge problem not to face because not understanding average life expectancy could cause them to overspend in the early years of their retirement.
What if they live into their late 80’s or 90’s? Most would be broke.
So how long can they realistically expect to live?
(Source: Society of Actuaries RP-2014 Morality Table projected with Mortality Improvement Scale MP-2014 as of 2015. *At least one surviving individual.)
On average, a 65-year-old man has a 50% chance of living until age 87 and a 25% chance of living until age 93, according to Fidelity.
A 65-year-old woman had a 50% chance of making it to age 90, and a 25% chance of living to 96.
Unfortunately, many retiring boomers do NOT realize that they can be nearing a retirement that could last for three decades or more.
What can we do to help?
As you now know, we are facing a baby boomers retirement crisis in the U.S. Some of us maybe boomers ourselves but many of us (including me) have boomer relatives.
Sit down and have a cup of coffee with them & ask them about their retirement plans.
Asking questions is a great way to get the conversation going which then you can start to address some of the things we discussed today.
Do you plan on helping your boomer relatives with retirement advice?
I’m a younger boomer. My husband and I are not normal in that we still have three more high school tuition payments to make, plus four years of college. However, our savings are far more that you deem average. First of all, plenty of those boomers do have defined benefit pensions. Anyone who worked for twenty plus years for the government at any level, the military or teaching school or working for a non-profit, and is a Boomer probably has a pension coming. Newly hired employees in those areas are being pushed to defined contribution programs, but Boomers in those industries probably were covered by the old system.
Second, while many Boomers have received their inheritance, many, especially the younger ones, have not. Someone born in the early ’60s to parents who were in their early 20s is a Boomer, and his/her parents are in thier late 70s or early 80’s and as your graphic shows, lots of 80 year olds are still around..
Third, that whole “averge” thiing can be meaningless. Yes, there are plenty of people who have no savings–and who have lived hand-to-mouth their whole life. For low-wage people, SS will cover a large part of their pre-retirement income. They may move in with family or, if they own a home, let family move in with them. They won’t have work-related expenses and they are used to a much lower standard of living than you and I are.
In sort, I don’t think you have to worry about mass impoverishment of my generation. Yes, things are different for us than they were for our parents, but things will be different 30 years from now when you want to retire, or sixty years from now when your kids do.
Are there Boomers who have lived beyond their means and who will pay the price eventually? Sure–and the same I’m sure can be said about Millineals.
Thank you for reading and commenting.
All of the stats stated were not “mine”, they were from other sources such as the Insured Retirement Institute (IRI), IRS, Social Security website,etc.
The reason I bring this up is that it seems you misinterpreted that I am the one that developed them, I’m simple passing them along to the readers.
If you reread the article, the idea for topic came from a recent Wall Street Journal article titled, “Time Bomb Looms for Aging America.”
I am the boomer relative and no help is needed. I had access to a perfectly good 401k and it alone grew to well over a million. Plus Roth’s and taxable accounts these allowed us to retire early with no money worries at all.
Hi Steveark: Glad to see you have retired with no money worries. I’m sure that’s a great feeling. Count yourselves as one of the lucky ones.
I think this generation really did get screwed just with the timing of things.
This is the generation where the places they worked for were dumping the traditional pension retirement accounts and starting to put the task on the individual workers themselves with 401k plans.
Also during this time this generation didn’t have as easily disseminated information as we have now with the internet and the large amount of blogs tailoring to every niche imaginable.
Index funds were not even thought of until much later so they didn’t have the simple ability we currently have of just being the market, but rather had to rely on advisors who may not have their best interests at heart.
I agree with you. If we’re in a position to help our parents or other relatives, then we should help them make good financial decisions.
Nice article. Well researched. The one thing missing from it is the impact of working in retirement. I’m a Boomer. I have no plans to retire and quit working. I’m a financial advisor (blasphemy to your generation) and love the work I do with clients. I have a small practice that affords me the opportunity to do other things, like my blog. My wife’s company is a government contractor. When she retires, they will pay close to 60% of our healthcare throughout retirement. That’s a huge benefit that will save us thousands of dollars.
And unlike your generation, many of us like our corporate jobs and aren’t looking to get out. Many of us don’t define financial independence as Millennials do. Is there a problem? Yes. Is it as bad as the media suggest? I don’t think so. We are a resourceful generation who will figure out a way to make it work.
Thanks for raising the subject for disucssion.
Hi Fred: I’m not sure what led you to believe that I was a Millennial but I’m a Generation X’er (born in the 70’s).
I’m with you, I’m NOT planning on ever retiring from doing something whether it’s dentistry, financial coaching or whatever my interests are at that point in my life.
BTW: You gave me a GREAT idea for a new post regarding the impact of working in retirement as a boomer!
Hi Ray, Thanks for the helpful info to possibly living outside the US for boomers. I may just write that article now!
That would be great Jeff.
My mom is a baby boomer, and she took the early retirement at age 62 and is living comfortably in Europe. (Portugal) She’s enjoying life.
I am a boomer, and scared of my future.
Ive never made much per hour, never had enough to put away for savings. Im making more per hour no than eved before, and have less to spend, by the time i pay all the insurances required, home morgage, utilities, and medical bills on credit cards, i barely have enough to buy food and gas.
My job is very stressfull, and i had hoped to retire by 70 (4 more years), but dont know how any longer. I envy my class mates who made great choices and are retired now.