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
- Debt
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
1. Debt
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.
Some include:
- 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.)
Life Expectancy
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?
Comment Below.