Baby Boomers—the generation born between 1946 and 1964—are heading into retirement in droves. Along with the aging of this iconic cohort comes a lot of data concerning their lack of preparation for their later years. Insufficient financial resources paint a gloomy picture for many retirees.
The following is a summary of some studies that shed light on how financially prepared the Baby Boomer generation is for retirement.
- Baby Boomers are retiring in large numbers.
- Many do not have enough saved for their retirement.
- Beyond a lack of planning, a key reason Baby Boomers lack retirement savings is due to the 2008 financial crisis, as well as the chronic low interest rates since.
How Much Have Baby Boomers Saved for Retirement?
Baby Boomers have an average of $152,000 saved for retirement, according to the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. This is not nearly enough to last through retirement. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend, on average, $48,885 a year.
The study also found that 76% of workers overall believe that their generation will have a much harder time achieving financial security in retirement compared with their parents’ generation. This sentiment is shared by Millennials (79%), Generation X (81%), and Baby Boomers (69%).
Research by the Insured Retirement Institute (IRI) also suggests trouble for many retiring Boomers. IRI found that 45% have no retirement savings. Out of the 55% who do, 28% have less than $100,000. This suggests that approximately half of the retirees are, or will be, living off of their Social Security benefits.
The Great Millennial Wealth Shift
If you do not need Social Security benefits when you reach full retirement age, consider waiting until age 70 to receive the maximum possible benefit. Waiting any longer will not raise what you'll receive.
Why Baby Boomers Lack Retirement Funds
A key reason Boomers lack funds is the stock market decline during the Great Recession. This event scared many older adults out of the markets, causing them to miss the subsequent rebound. Panic selling, although understandable, decimated many retirement accounts.
The following years of low interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase. These yields, in turn, were invested in capital that earned virtually no interest. With wages plateauing, it was difficult for most workers to ramp up savings in their final earning years.
The most recent blow has been the huge losses and gyrations of the stock market due to the panic selling in February and March 2020. Even those who resisted likely took heavy hits to their assets.
Making all this worse is a lack of planning. “This is the first generation to face-saving for retirement on their own,” says Elyse Foster, CFP and principal at Harbor Financial Group, Inc. “I believe, early on, there was a lack of information on the importance of saving early and often. The assumption seemed to be ‘you are on your own.’” With luck, Generation X and the Millennials will benefit from seeing the impact of not planning early. But the Boomers have to deal with it now. The switch from pensions like benefit defined plans to contribution defined plans like 401(k)s have exposed baby boomers to the capital market risk and changed the way to deal with retirement savings.
The percent of Baby Boomers that have a backup plan for retirement income if forced into retirement sooner than expected, according to the Insured Retirement Institute.
Is This a Crisis?
Whether or not this can be called a crisis depends on which Boomers are being discussed, including the types of assets they can access. Boomers who own their own homes in an area with a lower cost of living may be able to live on quite a bit less than a rent-paying retiree in a major metropolitan area.
According to the Social Security Administration, 90% of retirees today receive Social Security benefits, in contrast to only 69% of retirees in 1962. The average Social Security benefit is $1,503 per month in 2020, substantially less than the average wage, which is approximately $3,668, according to the Bureau of Labor Statistics.
For many retirees, leaving work can mean a sometimes drastic lifestyle adjustment. Mark Hebner, president and founder of Index Fund Advisors, Inc., explains it the following way:
"Aside from solely relying on Social Security, looking to downsize your home, moving to a more affordable state, relying on public transportation, and having a robust budget that itemizes discretionary and non-discretionary items are all a good start. The most important thing is that retirees have the right mindset about their lifestyle in retirement. This is why it is important to start making lifestyle adjustments before you retire."
The Bottom Line
For those depending on Social Security benefits in their senior years, maintaining a comfortable lifestyle in retirement will likely be difficult. But whether Baby Boomers are in a retirement crisis depends on how you measure the situation, where they are living, and how their circumstances compare with their predecessors.