You know baby boomers. If you’re not one of them, then you know them as your parents or grandparents. And there are millions of them. They were born between the mid-1940s and 1964, and now they are reaching retirement age.
Research from Transamerica Center for Retirement Studies shows boomers have a median of $147,000 in retirement savings. Yet some estimates show retired couples could have up to $220,000 in medical expenses during retirement. It doesn’t take a Stephen Hawking-like intellect to know the one amount won’t cover the other amount. It’s one of several retirement mistakes boomers are making as they prepare for their golden years.
So the average baby boomer doesn’t have enough saved for retirement. If you’re one of them, there are ways to get back on track. We’ll show you how. But first, let’s assess where boomers stand with their retirement savings.
Scary numbers all around
To be fair to baby boomers, all generations in the workforce are a bit behind when it comes to saving for retirement. Research from PwC shows many baby boomers, Gen Xers, and millennials have less than $50,000 in liquid assets saved for retirement.
Thirty percent of boomers have $50,000 or less saved for retirement in 2017, which is actually an improvement from 37% in 2016. In comparison, 41% of Gen Xers, and 46% of millennials have less than $50,000.
Next: Boomers are getting closer to an old benchmark.
The $1 million threshold
It used to be that having $1 million was what you needed to retire. It sounds like a lot of money, but financial guru Dave Ramsey says it still might not carry you all the way through.
If you’re a baby boomer who has just retired or is about to and you don’t have $1 million sitting around, don’t worry — you’re not alone. In fact, most boomers aren’t even close. According to PwC, 62% of all boomers have less than $200,000 stashed away for retirement. Only 17% have $500,000 or more.
Next: Boomers shoulder the blame for their predicament.
Neglecting the future is a big reason boomers are in trouble
Sorry, baby boomers, you are largely to blame for your retirement savings snafus. The Economic Policy Institute shows only 53% of workers participate in any kind of retirement plan as of 2013, and that includes boomers close to leaving the workforce. Maybe that’s by design. Research from the Transamerica Center for Retirement Studies indicates two-thirds of boomers plan to blow past the retirement age of 65 or not retire at all. The same research shows 34% of boomers will rely on Social Security as a primary source of income.
Next: One more frightful number to consider
Boomers, like the rest of the workforce, are in trouble
We’ve spent a lot of time harping on baby boomers’ retirement shortcomings so far, but the majority of the workforce is in trouble.
People aren’t participating in retirement plans, and even those who are don’t have enough. Both of those facts are due in part to circumstances beyond anyone’s control. The Great Recession impacted savings across the workforce. While younger workers (ages 32 to 37 and 38 to 43) have rebounded nicely, workers 44 and older still haven’t seen their accounts recover.
Next: Important questions to ask before retirement
Time to look at yourself in the mirror
Whether you’re a baby boomer in your mid-60s or just entering the workforce in your 20s, there are retirement questions everyone should ask themselves. No less an authority than AARP says these are the important ones to consider no matter where you are on your employment timeline:
- What will your living costs be? Will your house be paid off? Are you planning on renting?
- What other expenses (in addition to medical) will you incur?
- Do you have enough to last? People are living longer, and medical expenses are going up. Will your personal funds carry you through?
Next: It’s never too late to play catch-up.
5 ways boomers can get back on track
We’ve seen that baby boomers aren’t alone in their struggles saving for retirement. But because they are closest to retirement it’s important to get back on a clear path to their golden years, and there are some solutions to do just that.
1. Increase savings
The most obvious remedy if your savings account is a bit light is increasing savings. Duh.
Todd Tresidder of the website Financial Mentor says the three best ways to do that are eliminating credit card debt, automatically increasing savings, and putting all bonus income toward retirement.
Getting rid of credit card debt and the debilitating interest payments that cause so much misery should be the first step. After that, Tressider recommends automatically moving money to savings each paycheck or putting any bonuses or tax refunds toward retirement. His thinking for the last two strategies is if you don’t know you have access to that money then you won’t miss it. As Tresidder writes, though these steps seem small the savings can quickly add up.
Next: Another obvious step
2. Saving now and later
If you’re not contributing to a 401(k) or other retirement plan, if you cashed one out, or if you never rolled yours over when changing jobs, then you already made some of the biggest mistakes. It might be why you’re scrambling to catch up with retirement staring you in the face.
In the better-late-than-never category, remedy that right now. All your 401(k) contributions are on a pre-tax basis, meaning you will pay less in taxes now while also saving for the future. It’s a win-win. And if you’re over 50, you can contribute even more to your 401(k) each year.
Next: Get rid of the excess baggage.
3. Shed nonearning assets
Is your home too big? Are you paying a ton in property taxes? Do you have some valuables you can stand to part with? Any assets in your name that aren’t earning money are eating away at your potential nest egg.
As an example, Tresidder writes that $300,000 from the sale of a home invested wisely with a 7% return can lead to more than $20,000 in income generated each year. Downsizing your home will not only lead to lower payments but lower expenses on utility bills.
Next: Adjust the way you think of retirement.
4. Redefine your retirement
If saving big for retirement just isn’t in the cards, or if you think you’re going to come up short, then it might be time to redefine your retirement.
As we noted earlier, a study by the Transamerica Center for Retirement Studies shows two-thirds of baby boomers plan to work in retirement or not retire at all. It sounds counterintuitive but so does working full time for decades and then doing nothing at all. Even AARP is aware many adults preparing for retirement are considering second-act careers. And Tresidder notes that working while retired is a great way to stay active, remain relevant, and maintain structure in your life. He suggests delayed or phased retirement instead.
Next: They’re called no-nos for a reason.
5. Avoid dangerous mistakes just before retiring
If you’re short on time and funds and close to retiring, you might be tempted to reach for big returns. Tresidder advises not to give in to temptation.
Shifting your portfolio to high-risk stocks could pay off, but they’re called high risk for a reason. You could lose everything. Then, your retirement could truly go off the rails.
Planning on otherworldly returns is another big no-no. In a dream world, our investments would return 40% every year like clockwork. In case you haven’t noticed, this isn’t a dream world. Stem your expectations, and plan on conservative returns.
Don’t load up on one stock. A diverse portfolio is a safer portfolio. No stock is fail-safe, so spread out the risk to ensure your savings won’t tank if your favorite stock does.
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