You’ve probably already heard that we’re heading into a retirement crisis. The reality is our world has significantly changed and our retirements will be vastly different than most expect. Some of the following baby boomer facts will surprise you and create insight into your own retirement.
Baby boomers have experienced more social change and upheaval than any other previous generation. We can be proud of tremendous events such as putting a man on the moon, civil rights, and medical breakthroughs such as ending small-pox and polio. In addition, other major changes include the birth of rock and roll music, the World Wide Web, and social media.
What baby boomer doesn't remember this historical moment?
Retirement, traditionally, was at age 65 portrayed as a lifestyle of leisure for one’s remaining years. This has dramatically changed with increased life expectancy, better health, and the desire to live a more active life. Massive numbers of baby boomers retire each and every day and will continue to do so for the next decade. Sadly, many do not have the financial means to support themselves over the next 20 to 30 years. Let’s look deeper into the baby boomer facts and the pending crisis.
Unprecedented Numbers of Retiring Baby Boomers
There are approximately 75 – 77 million baby boomers throughout America making up 26% of the population. According to the U.S. Department of Health & Human Services, “More than 10,000 people turn 65 every day in the United States, and people are living longer, healthier lives.” This trend is expected to continue until 2030.
There are multiple consequences of such a top-heavy aging population that will deeply impact each and every one of us. Social security is already strained with continuing reform discussions. Retirement and extended care facilities are at or near capacity and at risk of being overwhelmed in the near future. Healthcare costs continue to increase at alarming rates.
Baby Boomers Have Inadequate or No Retirement Savings
We all know we should save money during our working years for retirement. A recent survey from Insured Retirement Institute revealed that 45% of Americans have no savings at all. Of the 55% with retirement savings, over half report less than $250,000.00. Thus, approximately three quarters of all retirees have no or inadequate savings and will be dependent upon social security. Although this seems incredible, there are numerous contributing factors.
Lack of Financial Savvy:
Over the past couple of decades, we have seen a shift from company pension plans to self-managed employee plans. The real benefit of a pension was that everything was managed for you with automatic deductions. If you changed employers, the pension plan often had been phased out and you became wholly responsible for a self-managed plan.
Most companies partner with a financial organization and offer their employees matching contributions. However, options are not always explained in a manner that help employees make good decisions. The onus is upon them to read the literature and determine their best investment strategy. Without an understanding of the importance of participating, as many as one in four employees have missed out on the matching company contributions.
Research done by Dalbar Inc. reflects the average investor consistently earns below average returns. For the 20-year period ending December 31, 2015, the average equity fund investor earned 5.19% whereas the S&P 500 Index averaged 9.85% (a discrepancy of 4.66%).
For those few with a knack for finance, they took a more active interest in their investment strategy and developed a balanced portfolio. Moreover, they educated themselves on the concepts of compound growth, diversified portfolios, and risk tolerance. Over their working life, they diligently saved money and monitored their investments.
Other Contributing Factors:
- Delayed Start in Saving - our parents wanted a better life for us baby boomers which frequently meant a trade or college education. As a result, those additional years in school delayed our income producing years. Getting an education didn’t always lead to a good salary immediately as we began in entry level positions. In those early days, living expenses such as rent, groceries, car loans, and repaying student debt took priority.
- Early Retirement - baby boomers, on average, retire earlier. According to statistics presented by DQYDJ, “The average retirement age in the United States among currently living retirees was 59.88 years old”. The most common age to retire is 62 which coincides with the earliest age eligible for reduced social security.
Transamerica Center reveals that 56% of people retired sooner than planned. In addition, more than half (54%) of these retirees identified employment related reasons including job loss, organizational changes, unhappiness, and/or buyout option.
Born between 1946 to 1964, Baby Boomers followed the Silent Generation and preceded Generation X.
The other retirees indicate health and/or family related reasons, such as their own health issues, family responsibilities, and/or that their spouse was retired. Only 11% identified that they retired sooner than planned due to financial ability.
- Changing Job Market – the global economy has dramatically altered how corporations view their employees. “Do more with less” and downsizing have become the standard mode of operation to increase productivity. Manufacturing and many knowledge based jobs have been outsourced overseas. Most of us have experienced several career changes.
- Investment Market Exceptions – over the past decade we have witnessed an all-time historic low interest rates, an ever-changing stock market, and a housing market collapse. Retirement savings, for many, have been crippled.
- Family Member Support - for those with kids, over 50% have financially supported adult children due to the high cost of education and difficulty for new graduates to begin a career.
Baby Boomers Working Longer
Even though the trend is toward earlier retirement, 31% of baby boomers state they plan to retire at 70 or not at all. The Insured Retirement Institute notes that only 7% of all retirees actually retire after the age of 70. What we do observe is 65% of retirees re-enter the work force either on a part-time or volunteer basis either for financial reasons or just to remain active.
Baby Boomers are living longer, healthier, happier lives
Increased Life Expectancy
Back in the 1950's, the standard retirement age was 65 with an average life expectancy of 67 years. The national average has risen largely due to healthier lifestyles and improved health care. According to data compiled by Social Security Administration [US]:
- A 65-year-old male can expect to live on average until age 84.
- A woman turning 65 can expect to live on average until age 86.
- About one in three will live past age 90 and one in seven will live past 95.
Although these are averages, additional factors need to be considered on an individual basis such as current health, family history, and lifestyle.
Social Security Concerns & Baby Boomers
The future of Social Security is of concern, especially as so many retirees will become dependent upon it. According to the Social Security Administration, “As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits”.
It is highly probable we will see changes prior to 2037 which may increase in payroll tax, decrease benefits, or some combination of both. Notwithstanding, the fundamental issue is birth rates have declined resulting in lower overall contributions with an increase in the numbers of baby boomer retirees drawing upon it.
Sky Rocketing Healthcare
Healthcare costs could easily become the greatest cost in retirement. The Insured Retirement Institute state “An average healthy 65-year-old couple retiring in 2018 could expect to pay $363,946.00 in their lifetime Medicare and supplemental insurance premiums and in out-of-pocket costs. This does not include the cost of long-term care.”
Genworth cost of care research indicates 7 out of 10 people will require long-term care in their lifetime. The national average cost for assisted living is $4,000.00 per month whereas a nursing home (semi private room) is $7,441.00 per month.
Of growing concern is the increase in Alzheimer's and other forms of dementia. Affecting an estimated 5.8 million Americans, this number will only continue to increase as our population ages. According to Bankrate, if you or a loved one are diagnosed, it becomes imperative to get your affairs in order (enduring power of attorney, living will, etc.) and manage your finances. This is particularly important due to the progressive nature of the disease as well as limited assistance from Medicare and other healthcare plans.
In conclusion, these baby boomer facts reflect a retirement landscape that few have prepared for. Change is inevitable. How we choose to adapt will determine the quality of each of our retirements.
U.S. Department of Health & Human Services, website https://www.hhs.gov/aging/index.html
Insured Retirement Institute (2019 April) Boomer Expectations for Retirement https://www.myirionline.org/docs/default-source/default-document-library/iri_babyboomers_whitepaper_2019_final.pdf?sfvrsn=0
Social Security Administration [US], Goss, Stephen The Future Financial Status of the Social Security Program https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
DQYDJ, PK, (2019, May 10) Average Retirement Age in the United States https://dqydj.com/average-retirement-age-in-the-united-states/
Transamerica Center for Retirement Studies, (2018 December), A Precarious Existence: How Today’s Retirees Are Financially Faring in Retirement https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf
Genworth Financial Inc [US], Cost of Care 2018 website, https://www.genworth.com/aging-and-you/finances/cost-of-care.html
Bankrate, How to Financially Plan for an Alzheimer's or Dementia Diagnosis, https://www.bankrate.com/loans/how-to-manage-finances-after-alzheimers-diagnosis/