If bigger is better, than the Baby Boomer generation, with more than 76 million members and the distinction of being the largest generation, is certainly thriving. This generation controls more than 70% of the net worth of American households. There’s just one problem: the Baby Boomer generation isn’t necessarily retiring as well as they’d hoped.
According to CNBC, only 60% of Baby Boomers report having any retirement savings at all. 36% are planning to retire at the age of 70 or later, instead of feeling confident that they would be able to retire at an earlier date. In fact, only 27% of Baby Boomers are confident that they have enough money saved for retirement.
The average Baby Boomer wants their nest egg to provide around $45,500 in retirement income. Unfortunately, the average retirement portfolio only has about $136,200 in it. This allows for an average annual income of only $9,120.
Here are some of the findings of a recent study conducted by Senior Planning Services, an LTC Medicaid planning company.
Why the Struggle?
Many Baby Boomers will admit that part of the problem with their portfolios is terrible timing. Twice during their prime working, saving, and investing years, Boomers experienced serious market tumbles. During the dot-com bust, the S&P fell 49%. During the Great Recession, the dip was even more severe at 57%. Between these serious deficits and the five challenges we present below, many Baby Boomers are struggling to have the retirement plans they need.
1. Lack of Savings
For the first time, the older generation finds itself carrying debt into the retirement years. Baby Boomers owe an average debt of around $70,000, with many of them still struggling to pay off their mortgages and take care of other expenses occurred during their younger years. They might have failed to create a disciplined plan early in their working years to plan for retirement. All too many Baby Boomer simply don’t have enough saved up to retire.
2. Low Interest Rates
Low interest rates, simply put, mean that there’s not a high enough yield on investments that many Baby Boomers made in the hopes that they would be able to use them to pay for retirement. Low interest rates mean that they’re not able to accumulate the funds that they need in order to cover their retirement desires.
3. Investment Troubles
Baby Boomers have seen two enormous crashes in their lifetime. That means that they tend to make very conservative investments in the hopes that they will continue to pay off—and that they won’t lose money in the process. Unfortunately, these low-risk investments also tend to yield very little return, so if Boomers were hoping they would provide retirement income, they’re going to be in trouble.
4. Cost of Living
Cost of living is higher now than many Boomers assumed it would be. In order to retire, they need to be able to pay for retirement! They have to pay their bills and keep up their standard of living. Many find themselves living longer than intended with health issues that they didn’t anticipate. Others found themselves spending years caring for their aging parents.
5. Retirement Years
Boomers are discovering that they’re simply living longer than they planned. Scientific advances have left them in the position of expecting a longer lifespan, but with that comes the need to pay for those years. Some Boomers have given up on retirement altogether, assuming that they will need to work indefinitely in order to cover their expenses.
Even with their substantial financial strength, many Boomers face serious threats to their financial health as they enter their retirement years. Most Americans are a few years—or potentially even more—behind on retirement savings. Boomers, who are ready to retire, find themselves in the position of needing to address the situation immediately.
The solution? Cutting expenses and shoring up savings. Many Boomers are choosing to sell their homes and downsize, work more years than they initially planned, or to consider multi-generational housing. Combining resources with their loved ones is a great way for many Boomers to continue to live at their expected standard of living while still retiring on time. Maximizing federal, state, and Social Security benefits will also help Boomers prepare for adequate living during their retirement years.