76 million baby boomers are heading into retirement. According to some estimates, they won’t have enough money to last throughout their lifetime. The National Institute on Retirement Security (NIRS) calculates that two-thirds of households age 55-64 have savings equal to less than their annual income. A third have no savings at all. The Employee Benefit Research Institute (EBRI) estimates that 57 percent of boomers are prepared to support themselves in retirement at their current standard of living. Which leaves about 43 percent who won’t be able to, including millions of middle-class and low-income Americans. Even Boomers with higher incomes, could run through their savings within 20 years of leaving work. Many sooner.
The outlook is especially dire for women, who on average have shorter work histories, smaller paychecks and longer life spans. Minorities are also disproportionately at risk. Households of all ages are dangerously short on savings, though younger people have more time to try to catch up.
Because it’s not a widely discussed topic in the media or over kitchen tables, some are concerned that many Boomers heading into retirement won’t be aware they aren’t prepared.
According to Fidelity Investments’ oft-cited guidelines, people should aim to retire with savings equal to eight times their salary. To be on track for that target, Fidelity says people should have set aside five times their salary by age 55.
But the median retirement account balance is actually much, much lower, rounding out at about $14,500 according to the NIRS. The NIRS calculated that as of 2010, “the top 5 percent controlled 54 percent of the assets. The top 10 percent controlled 70 percent of baby boomer assets. The top 25 percent controlled 89 percent. The bottom half only had 3 percent.”
Surveys find people heading into retirement worry that their own savings are insufficient but do not generally grasp the magnitude of the problem. Boomers have watched their mothers and fathers retire comfortably as older boomers and people born during World War II are, as a group, in notably good shape financially.
“That’s part of the reason why people haven’t fully come to grips with some of the changes that have occurred,” said Andrew Eschtruth of the Center for Retirement Research at Boston College and co-author of “Falling Short: The Coming Retirement Crisis and What to Do About It.” “They think, ‘Oh, my parents retired in their early 60s and they seem to do pretty well, things will probably work out for me.’ ”
What many Boomers do not consider, however, is how dramatically the retirement-funding environment has changed over the past decades. We’ve seen a huge decrease in defined benefit plans like pensions, contribution plans, 401(k)s and IRAs.
To make matters worse, boomers have been hit hard from years of financial stress, including the Great Recession. With job losses and decimated investments, many of the unemployed were forced to draw money from retirement accounts to live on. The EBRI estimates the recession increased the number of at-risk households by up to 14 percent.
Boomers have also had to deal with insecure estate prices, skyrocketing costs for health care and tuition for their kids, and incomes that have not been able to keep up with inflation. Adjustments to the Social Security system, which supplies nearly 40 percent of average retirement income, will likely cause payments to decline to about 36 percent by 2030, Eschtruth said.
Financial experts are advising Boomers to postpone retirement as long as possible. Working longer means more savings, postponing drawing from 401(k)s and IRAs, and boosting Social Security checks, which increase with age.
“That’s harder for people who have physical jobs and lower job skills, but we think most people could work longer than they do now,” Eschtruth said. “If everybody worked until age 70, about 80 percent of people would be able to maintain their standard of living in retirement. For each year you wait [beyond full retirement age], you go up by 8 percent in the monthly [Social Security] check you get.”
Financial advisors suggest another way to secure stability. Financial education: attend seminars, educate yourself and your spouse on ways to save before retirement, seek out pension plan advice to jump-start the retirement saving process and learn to prepare adequately for retirement.
