Retirement savings are a pressing concern for a generation of individuals born between 1960 and 1965, often referred to as ‘late boomers’. Recent research from the Center for Retirement Research at Boston College (see here) reveals that this cohort faces significant challenges in building a comfortable retirement nest egg. Compared to their earlier boomer counterparts, late boomers have accumulated considerably less wealth, a worrisome trend that warrants attention.
Defining the Dilemma Retirement Savings
When it comes to wealth, late boomers find themselves in a precarious position across multiple dimensions: total wealth, retirement wealth, and 401(k)/IRA wealth. On average, this group possesses lower financial resources compared to mid boomers, born between 1954 and 1959. For instance, the average holdings in direct contribution plans such as 401(k)s, 403(b)s, or IRAs stand at $32,700 for late boomers, whereas mid boomers boast a healthier figure of $52,300. The disparity extends to overall retirement wealth, with late boomers amassing $299,703 in contrast to the $350,449 held by slightly older individuals.
The Unprecedented Divide
Anqi Chen, a senior research economist at the Center for Retirement Research, underscores the gravity of this situation by labeling the gap between late boomers and their predecessors as “unprecedented.” Chen attributes this inequality to the untimely impact of the Great Recession, which struck late boomers at a crucial juncture in their lives—during their peak earning years, roughly between the ages of 42 and 49. These years were pivotal for savings accumulation and setting the stage for a secure retirement. However, the recession led to widespread job losses and the acceptance of lower-paying positions, diminishing the ability of many late boomers to participate in essential retirement accounts like the 401(k), consequently jeopardizing their financial future.
Despite the passage of time, the repercussions of the Great Recession linger. Late boomers have struggled to regain their footing after the economic downturn due to the enduring impact on their wealth-building potential. A combination of factors compounds their difficulties, including a disproportionate share of Black and Hispanic households with lower earnings relative to their white counterparts, along with a declining prevalence of married households and individuals holding college degrees.
Adapting to Change: A Necessity
Late boomers were met with unexpected challenges as they transitioned from traditional pension plans to direct contribution plans like 401(k)s. This transition placed the onus of retirement savings squarely on their shoulders, necessitating active engagement in saving for their golden years. Moreover, the change in the Social Security full retirement age, rising from 65 to 67 for those born in 1960 or later, further exacerbated the issue by reducing benefits by 13 percent.
While the situation may seem daunting, there are strategies that late boomers can employ to enhance their retirement prospects. Automating retirement savings by allocating a percentage of income from each paycheck, rather than a fixed dollar amount, is a proactive step recommended by experts like Lisa A.K. Kirchenbauer, the founder of Omega Wealth Management. This approach ensures that as income increases over time, so does the dollar amount directed towards savings.
Smart Strategies for Boosting Savings for Retirement
Late boomers can also adopt strategic measures to balance financial responsibilities. Balancing spending and saving by strategically allocating bonuses allows late boomers to enjoy the present while fortifying their future. Consulting certified financial planners or using online retirement calculators can provide valuable insights, instilling a sense of urgency in financial planning.
A Helping Hand in Technology
Online retirement calculators have become valuable tools for individuals seeking to gauge their retirement readiness. Notable options like AARP, Bogleheads, Fidelity, Schwab, and Vanguard provide accessible platforms for assessing one’s financial trajectory and making informed decisions.
Embracing Extended Employment
A substantial portion of late boomers may consider extending their working lives to mitigate retirement savings shortfalls. A survey conducted by the nonprofit Transamerica Center for Retirement Studies found that over a third of respondents expressed a willingness to work longer. However, such a plan requires a proactive approach to skill development to ensure employability in an evolving job market.
Maximizing Contributions: A Key Strategy
Eric Park, a certified financial planner, underscores the importance of capitalizing on the “over age 50 catch-up” provision for retirement fund contributions. Workers with 401(k)s, 403(b)s, 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $22,500 annually, with an additional $7,500 allowed for those over 50. Individual Retirement Account (IRA) holders over 50 can contribute an extra $1,000 on top of the $6,500 limit.