Baby Boomers and Retirement Savings

The number of baby boomers who are deciding to retire is at a record pace, at 3.2 million more from 2019-2020 than in previous years. However, according to a Pew Research Center analysis of monthly labor force data, the makeup of those retirees is starting to change. 

The recent increase is more pronounced among Hispanic and Asian American boomers -- up four and three points, respectively. On the geographic side of the equation, the increase is coming from those living in the Northeast U.S. -- up from 35 percent in February to 38 in September.

Job loss may be a factor

Pew researchers say job losses may be a dominant factor in this wave of retirements, probably at the hands of the COVID-19 recession. Since February 2020, the number of retired boomers has increased by nearly 1.1 million. 

Pew couches that number by saying that some of this increase could reflect seasonal change in employment activity. But running the numbers from February to September period in 2019, the population of retired boomers increased by only about a fourth of what happened last year.

Another interesting metric is that the share of retiring boomers differs by education attainment. The number of boomers who finished their education when they graduated from high school are up two points since February, and those who completed a four-year degree are up one point. For those who had some college education, but didn’t walk away with a diploma, there’s been no change at all. 

Will boomers have enough money to retire?

Baby boomers and retirement savings go hand in hand, and many of those new retirees face mounting challenges regarding their savings nest. Navigating that can of worms comes with things like supplemental Medicare insurance.

Baby boomers have an average of $152,000 pegged for retirement, according to the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. While that may seem like a decent number when it stands alone, it’s not nearly enough to last through most people’s retirement. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend $48,885 per year on average, which means they would blow through that $152k in less than four years.

Does this mean that boomers should be sounding the alarm? Not exactly, but the situation does beg a reassessment of how long a boomer’s savings can last. It also begs the question of what adjustments can be made to soften a boomer’s cash outlay.

"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,” Mark Hebner, president and founder of Index Fund Advisors, Inc., told Investopedia.

“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 lifestyle adjustments before you retire."

Every day, baby boomers across America begin the process of downsizing, moving from a large home where they raised a family into smaller quarters that require less maintenance. Along the way, they discard lots of household items they accumulated over the years.

The William C. Huff Companies, which operates moving and storage firms, is partnering with Renovation Angel to help boomers downsize while keeping millions of unwanted household items out of landfills.

The two companies collaborated on the approach. Renovation Angel distributes unwanted household items to people who need and want them. William C. Huff Companies moves or stores the rest.

Their solution, called Downsizing Help, assists couples when they downsize and helps families liquidate an estate when a parent or family member dies. The companies say there are three goals -- to make the process easy, reduce the waste that ends up in landfills, and secure tax breaks for people who are downsizing.

Tax breaks

The companies say that the responsible recycling of unwanted household items can benefit community organizations while producing a tax saving of $3700 per $10,000 of donated items per family. The value of the donated items can be deducted from federal income tax returns

"As large estates are bought, many new homeowners choose to discard everything in the home and renovate the home to meet new styles and designs, often sending 'like new' cabinets and appliances to landfills,” said Jim Henderson, owner of William C. Huff Companies. 

“Also, when homeowners downsize they often need to rid themselves of the contents of the entire home which are no longer needed or wanted because they are moving into retirement communities where their new homes come fully furnished," Henderson said.  

Henderson says the donated items now end up in thrift stores instead of landfills and find a ready market. Consumers can purchase those unwanted items for a fraction of their value. And the emphasis on the environment doesn’t stop there.

Emphasis on the environment

“Providing logistics with low emission vehicles and storing items to be repurposed in a sustainable, solar-powered warehouse, hundreds of thousands of pounds of CO2 are cut from our environmental footprint each year,” Henderson said. “It's a win for everyone!"

The two companies say the market for this service is potentially huge. The National Association of Realtors recently reported that an estimated 12 percent of people between the ages of 45 and 64 who purchased homes in 2017 were downsizing.

The companies say that works out to about 80 million households, with the potential to redistribute over $20 trillion in household items over the next 20 years.

Millennials are normally the ones stressing out over their lack of retirement savings, but a new survey suggests baby boomers may have an even bigger reason to worry.

The 2018 Retirement Confidence Survey by Greenwald & Associates found that only six in ten American workers feel confident in their ability to live comfortably in retirement. Baby boomers, it seems, are feeling a lot of pressure.

A new independent survey by Clever.com found that most baby boomers think they’ll be able to retire by age 68, but they may not fully understand their financial needs. Personal finance experts generally suggest socking away about eight times your annual salary by age 60. Based on an annual income of $57,000 a year that would be about $456,000.

But when asked to reveal how much they had actually saved for retirement the average was around $136,779, well short of the recommended amount.

Other financial problems

Unfortunately, the survey found that boomers face other financial problems as well. A large portion of those responding to the survey admitted they are having trouble creating an emergency savings account and even paying off debt, making it even harder to save for retirement.

This isn’t the first survey to raise an alarm over the lack of retirement savings for a generation now entering retirement age. A 2015 report from the General Accountability Office showed a disturbing number of Americans were approaching their retirement years with no savings and few, if any, assets.

The report, requested by Sen. Bernie Sanders (I-VT), found that 52 percent of U.S. households age 55 and older have no retirement savings, such as in a 401(k) plan or an IRA. Worse still, the agency found many older households without retirement savings have few other resources, such as a defined benefit pension, non-retirement savings or other assets.

Too reliant on Social Security

A 2017 study by Bankers Life Center for a Secure Retirement (CSR) found boomers were overly reliant on Social Security to get them through retirement. Thirty-eight percent said their monthly check from the government would likely be their primary source of retirement income.

That's up more than 25 percent from before the financial crisis of 2008, a year which seems to have changed the financial landscape on a number of fronts.

Before 2008, Boomers were younger and a lot more optimistic about retirement. Then, about 43 percent said they expected personal savings or earnings from a job to be their primary source of income during their golden years.

The Clever.com survey paints an increasingly bleak picture for aging boomers, showing that 31 percent have no emergency savings and 40 percent are still paying off credit card debt.

Americans have been told they need to save for retirement for decades, but a new survey on the subject from Vanguard shows that not everyone has been listening.

The survey-takers talked with people nearing retirement age about their saving and spending habits and about how much they had socked away in retirement accounts. For those who had 401(k) accounts, the average balance was a little less than $200,000.

But the situation might be even worse. The median amount of savings for adults who are at least 65 is just $58,000. That means most people in the survey had saved considerably less than the average.

Concerns remain the same

The Vanguard researchers say retirement plans have improved since 2006, when Congress passed broader incentives to encourage retirement plan participation. They note that plan participation has, in fact, improved since then.

“However, as we look to the future, the main concerns affecting retirement savings plans largely remain the same -- improving plan participation and contribution rates even further and continuing to enhance portfolio diversification, enabling more individuals to retire with sufficient assets,” the researchers wrote.

The report traced the poor performance to three main factors -- income, age, and how long an individual had been at a particular job. It also found gender played a role.

“Sixty percent of Vanguard participants are male, and men have average and median balances that are about 50 percent higher than those of women,” the report said. “Gender is often a proxy for other factors, such as income and job tenure.”

Of participants taking part in the survey, men had an average of nearly $107,000 tucked away while women, on average, had $72,451. The researchers found women earned less than men and hadn’t been at their jobs as long as men.

But when all things were equal -- with women earning the same and having the same job tenure -- they tended to save more than their male counterparts.

Other studies

Other studies have shown people nearing retirement have less-than-adequate savings. A 2015 study by the General Accountability Office (GAO) found that half of older Americans had no money saved for retirement. When asked why, many said they had no money left over after paying expenses.

Perhaps because of that, a 2018 survey by Careerbuilder showed more than half of workers aged 60 years or older said they are postponing retirement plans. Worries about having enough money to last through retirement appeared to be the overriding reason.

The survey showed 53 percent of age 60-plus workers are putting off retirement, with significantly more men making that decision than women. Four out of 10 workers said they don't think they can retire until at least age 70.