Are We in a Baby Boomer Retirement Crisis?

Whether or not the world might be encountering a Baby Boomer retirement crisis may not be an easy answer, but there is data that help shed light into that specific generation’s economic situation.

In March 2016, GoBankingRates published research conducted with 1,504 adults over the age of 55 (4.3% margin of error). About 30% of the respondents age 55 and over claimed to have no retirement savings. An additional 26% reported less than $50,000 saved for retirement. When considering typical benchmarks needed for a successful retirement, 54% of the older Americans in this survey lacked sufficient retirement funds. 

But not all Baby Boomers lack reasonable assets. At the other end of the spectrum, 26% of those age 55 to 65 have balances greater than $200,000. Among the over-65-year olds, 31% had $200,000 or more in their retirement accounts. That’s heartening for them, but this chart paints a gloomier picture of those closest to retirement age:

Research by the Insured Retirement Institute (IRI) also suggests trouble for retiring Boomers. According to the study, 24% of Baby Boomers have no retirement savings – the lowest number since the study started in 2011. Only 55% of Baby Boomers have some retirement savings and, of those, 42% have less than $100,000. Thus, approximately half of retirees are, or will be, living off of their Social Security benefits.

In a 26-page report titled “Boomers Expectations for Retirement, 2018,” IRI published some positive data as well. 55% of Boomers state they are happy with the state of their life, as opposed to just 47% just the year prior. Also, those individuals who worked with a financial advisor tended to have more retirement funds, over $100,000, which applied to 79% of those in the study.

One main reason Boomer lack funds is the big stock market decline in 2008-2009 that scared some older adults out of the markets, causing them to miss the subsequent rebound. Panic selling, however understandable, decimated many retirement accounts.

The following seven years of low interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase, which in turn became invested capital that earned virtually no interest. And with wages plateauing, it’s difficult for most workers to ramp up savings in their final earning years. 

“This is the first generation to face saving for retirement on their own,” says Elyse Foster, CFP®, principal, 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.’”

Whether or not this can be called a crisis depends on many factors, including what type of assets Boomers are drawing from. Boomers who own their own home and lives in an area with a lower cost of living may be able to live on quite a bit less than a rent-paying retiree or senior living in a major metropolitan area.

About 84% of retirees today receive Social Security benefits in contrast with only 69% of retirees in 1962. Clearly, the average Social Security benefit of $1,317 per month is substantially less than the average wage; roughly 50% of seniors have additional asset income today compared with 54% back in 1962. Many retirees will be left collecting only Social Security payment which in January 2017, the average monthly payment being approximately $1,317.

For many retirees, leaving work can mean a sometimes drastic lifestyle adjustment. “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,” says Mark Hebner, president and founder, Index Fund Advisors, Inc. “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 the lifestyle adjustments before you retire.”

For those depending on Social Security benefits for 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 seniors are living and how their situation compares with their predecessors. The decision boils down to a case-by-case basis.