The stock market may have staged an incredible rally since the lows of 2009, but for some skittish baby boomers (those Americans born between 1946 and 1964) this move comes too little, too late.
A number of factors have combined to shatter the dreams of a comfortable retirement for select boomers. A volatile stock market is just one of many factors that may not have worked in their favor in recent years.
For example, historically low lending rates for the past six years have stymied any chance for boomers to safely outpace inflation with bank CDs and money market accounts. Additionally, the three decade-long shift from pensions as a retirement driver to the 401(k) has moved the onus of retirement savings from employer to employee. What's left are a handful of boomers suddenly realizing the path to retirement is laid on their shoulders, not their employers, and they aren't prepared.
A number of new reports have hit the newswires recently chronicling the under-preparedness of baby boomers for retirement, and the figures they present are downright frightening. Here are five such statistics that demonstrate just how serious of trouble the baby boomer generation could be in.
1. Approximately four-in-10 baby boomers have nothing saved for retirement.
According to a recently released study from the Insured Retirement Institute, just 69% of still working Boomers have money socked away for their retirement, while just 50% of already retired boomers have money saved. In other words, half of all retired boomers are living off of Social Security income, pensions, and other forms of recurring income, rather than retirement savings accounts. For added context, in 2011, 84% of working boomers have put away money for retirement, and 69% of retired boomers had money saved for retirement.
2. 36% of boomers plan to rely on Social Security as their primary source of income.
A recently released study from the Transamerica Center for Retirement Studies (TCRS) noted that the most commonly given answer from baby boomers as to where the majority of their income in retirement would come from was "Social Security" with 36%. This was closely followed by retirement accounts/savings at 34%, and company-funded pensions in a distant third with 12%.
This is particularly concerning because the Social Security Administration notes that Social Security income is only designed to replace about 40% of a workers' salary and not be a primary source of income. As an added complication, the Old-Age, Survivors, and Disability Trust Fund (a combination of the OASI and DI) is on pace to exhaust its cash reserves by 2033, meaning if Congress can't figure out a way to raise revenue, cut benefits, or some combination of the two, qualified beneficiaries will see a 23% reduction to their full retirement benefit.
3. Early boomer households are facing average shortfalls of $71,299 per individual in a family.
A study released in February from the Employee Benefit Research Institute offered a minor ray of sunshine by pointing out that 56.7% of early boomers are on track to meet their financial retirement needs. However, in instances where early boomers aren't prepared and a shortfall is expected, early boomers can expect an average shortfall of $71,299 per individual in a family, $93,576 for single males, and a whopping $104,821 for single females. In sum, this isn't an overnight fix.
Let's not forget as well that life expectancies are on the rise in the U.S., meaning retirement income needs to last longer than ever.
4. 19% of baby boomers who are offered a 401(k) or similar retirement plan don't participate.
Another frightening statistic from the recent TCRS report is that nearly one-in-five (19%) baby boomers who were offered the chance to participate in an employer-sponsored 401(k) retirement plan chose not to.
Not only does this hamper boomers' potential to save for retirement, but in some instances I'd have to believe that boomers might be leaving what's essentially free money on the table in the form of company-sponsored matching contributions. Although not every company will match a percentage of your contributions, 401(k)helpcenter.com data shows that 78% of employers match employee contributions to at least some degree.
Also noteworthy, nearly a quarter (23%) of boomers with 401(k)s or IRAs have a taken a loan out against their retirement account or made an early withdrawal.
5. Full-time workers have a Retire Ready Index Score of just 4.1 out of 10, while retirees scored 5.5 out of 10.
Lastly, a study conducted by Voya Financial last summer of all workers (not just boomers) and retirees (again, all retirees, not just boomers) that rated respondents on a scale of 1-to-10 based on financial preparedness suggested that neither workers nor retirees have adequate knowledge, planning, or assets for retirement.
Voya's survey was broken into three categories: knowing, planning, and having. In terms of knowing workers scored a 5.8, while retirees chimed in at a respectable score of 7. However, planning and having scores for both workers and retirees were dismal, including a "planning" score of 3 for workers. In other words, Americans generally have an OK understanding of the basics of retirement – identifying compounding principles, figuring out which investments possess less risk, and so on – but their application of these tools, such as forming a budget and a financial plan of action, is terrible.
Three things for boomers to consider
With time being the greatest ally of any investor, and boomers potentially losing some of that leverage as they near retirement, here are three things they can consider right now in order to get their retirement back on the right path.
First, consider working past pre-set and psychological retirement ages of 65 or 66. More than a third of boomers in the Insured Retirement Institutes' survey already planned to work past 70, which may wind up being a wise course of action. If boomers can delay the need to file for Social Security benefits by using working income to live off of, they could potentially wait until age 70 to claim Social Security benefits in order to maximize their income, which could be a big help if their retirement savings aren't where they should be.
Secondly, boomers should seriously consider opening and/or contributing to a Roth IRA. To begin with it's never too late to start investing for your future, and with life expectancies approaching 79 years in the U.S. the chance of your future extending further into the horizon is increasing. More importantly, though, a Roth IRA offers a number of unique advantages to boomers. You'll have a catch-up contribution of an extra $1,000 you can invest annually because you're over 50 years old, the capital gains earned over the long-term are completely tax-free, and with a Roth you aren't required to stop making contributions or to take contributions by a certain age unlike a Traditional IRA.
Third, for those boomers who've been hit especially hard since the recession it may not be a bad idea to consult with an advisor. Consulting with a financial professional isn't "giving up" or a sign that you've failed, but merely a way to ensure your avenues to prosperity stay open. It also can be good to get a fresh pair of eyes on your financial situation to catch anything you may have missed. Keep in mind, however, that even if you choose to go with a financial advisor you are still in the driver's seat of your own retirement.