The Baby Boomer generation is facing a harsh reality of delayed retirement. Here’s how to get your retirement back on track.
According to the US Bureau of the Census, 75,858,000 births were registered from 1946 through 1964.
That means more than 10,000 baby boomers reach retirement age every day in the United States. Between now and 2029, baby boomers will continue reaching the traditional retirement age of 65 at the rate of about one every eight seconds.
But is retirement at 65 still a reasonable goal for the vast majority of baby boomers, let alone early retirement?
A combination of weak market returns, struggling government benefits and retirement savings that haven’t met goals could bring a harsh reality for many boomers.
Baby Boomers’ Reality Check
In the 2013 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), workers aged 55 and older said the following about their retirement savings:
- 60% have less than $100,000 in retirement savings
- 43% have saved less than $25,000
- 36% have saved less than $10,000
Despite the apparent lack of adequate savings, 70% of all workers surveyed also said they believe they are “doing a good job of preparing for retirement”—even though only 46% of all workers surveyed have a retirement plan!
There’s a troubling disconnect between perception and reality when it comes to how much we will need to spend in retirement and how best to fund that spending.
Delayed Retirement May Be an Unexpected Reality
Not so long ago, retirement planners talked about the three-legged stool of retirement income: Social Security, traditional company pensions and personal savings.
But that three-legged stool seems more like a pogo stick these days. Traditional pensions are on the wane—replaced by contributory plans such as 401(k)s and 403(b)s—and there's widespread skepticism regarding the long-term viability of Social Security.
The parents of boomers could rely on pensions and Social Security for the bulk of their retirement income. The shifting realities of retirement seem to have caught the bulk of baby boomers by surprise.
The Social Security Administration has started to address its shortfall by moving the goal posts. While you can still retire at 62 and receive some benefits, full retirement benefits from SSI aren’t available unless you delay.
The table below shows just how much you can expect from social security depending on the year you were born and the age you start taking benefits.
For example, if you were born in 1957, you could retire at 62 and collect about 73% of your full benefits each month for the rest of your life. On the average SSI monthly benefit of $1,360 – that means a benefit of about $993 per month. Your specific retirement benefit will vary depending on how long you worked and other factors.
You could collect the full SSI benefit by waiting until you turn 66 and a half. Delaying retirement until you turn 70 would mean an extra 27.9% or a benefit of approximately $1,739 per month.
The Social Security Problem for Baby Boomers
A lot of baby boomers are slowly coming to the realization that their retirement savings hasn’t kept up with spending. Among those still working, Gallup reports the average age people expect to retire is 66 years old, up from 63 in its 2002 survey.
The problem is that the actual age at which people are retiring is much younger, just 62 years old according to the poll. More than half the population has already retired by the age of 65 and only about one-in-five wait until 70 or older to retire.
Besides moving the retirement age, other likely scenarios await baby boomers and others in the push to keep Social Security solvent. These include reduced retirement benefits, means testing as has already been done with Medicare, and an even higher eligibility age.
It makes it all the more important to revisit your retirement plan and make sure you are on track to meet your goals.
Getting Your Retirement Back on Track
Maintaining flexibility in your financial life takes a little work, but can pay off down the road. Here are a few financial stretching exercises you can do today to help ensure your financial well-being and independence in retirement:
- Create a plan. Run the numbers to see how much you should be saving, based on your best estimate of what you plan to spend in retirement. This should start with a personal investment plan developed around your goals. Get some help crunching the numbers if you need it, but be sure to use realistic figures for how much you need to accumulate and what rate of return you can expect on your investments (don't forget to take market volatility into account).
Balance is key—you don't want to be overly optimistic and run the risk of missing your goals, but you also don't want to be overly pessimistic and make unnecessary sacrifices.
- Save more. Once you've set a reasonable retirement savings target, do whatever it takes to make it happen. Spending less so you can save and invest more is one way to get there. For example, saving an extra $2,000 per year (less than $170 per month) for 20 years could mean an additional $78,000 when you're ready to retire, if you manage to average an annual compound return of 6% on a portfolio of stocks and bonds.
The key is realistic retirement planning. Other viable options include retiring a bit later, working part-time in retirement, or spending less in retirement. Of course, these choices aren't mutually exclusive. A combination, to one degree or another, might work well for you.
- Do your own reality check. Manage your expectations and stay flexible. There's no magic formula. And, no matter how well you plan, the future remains uncertain. The best you can do is put probability on your side through prudent planning, discipline and hard work. Being well prepared ahead of time will put you in a much better position to roll with the punches later on, when your options will be more limited.
The ultimate goal is a comfortable retirement—one in which you can maintain your desired lifestyle and “do your own thing” with as much peace of mind as possible. It's still doable, but time is running out.
Whether you’re a Baby Boomer, Gen X or even a Millennial just planning ahead, don’t let the harsh reality of delayed retirement catch you off guard. Make a plan and revisit your retirement savings every few years to make sure you are on track. Be realistic and make the little changes now that will help you avoid the big sacrifices later on.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.