Are We in a Baby Boomer Retirement Crisis?

Baby Boomers—the generation born between 1946 and 1964—are heading into retirement in droves. Along with the aging of this cohort comes a lot of data concerning their lack of preparation for their later years. Insufficient financial resources paint a gloomy picture for many retirees.

The following is a summary of some studies that shed light on how financially prepared the Baby Boomer generation is for retirement.

How Much Have Baby Boomers Saved for Retirement?

Baby Boomers have an estimated median retirement savings of $194,000 as of late 2023, according to the TransAmerica Center for Retirement Studies. The survey found that though 44% if Baby Boomers have more than $250,000 in retirement savings accounts, 26% had less than $50,000 in retirement savings accounts and 10% had nothing saved.

The estimated median home equity for middle-class retirees as of late 2023 was $177,000, though 15% of middle-class retirees reported no home equity. (Middle class was defined as having an annual household income between $50,000 and $200,000.)

This is not nearly enough for retirement, which can last up to three decades or even longer. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend, on average, $48,885 a year. Using the 4% rule, that means that the average nest egg for this age group should be $1.22 million to last thirty years in retirement.

Why Some Baby Boomers Lack Retirement Funds

A key reason Boomers lack funds is the stock market decline during the Great Recession. This event scared many older adults out of the markets, causing them to miss the subsequent rebound. Panic selling, although understandable, decimated many retirement accounts.

The following years of low interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase. These yields, in turn, were invested in capital that earned virtually no interest. With wages plateauing, it was difficult for most workers to ramp up savings in their final earning years.

The most recent blow has been the huge losses and gyrations of the stock market due to the panic selling in February and March 2020. Even those who resisted likely took heavy hits to their assets.

Making all this worse is a lack of planning.

“This is the first generation to face saving for retirement on their own,” says Elyse Foster, CFP and principal at Harbor Financial Group, Inc. “I believe, early on, there was a lack of information on the importance of saving early and often. The assumption seemed to be ‘you are on your own.’”

With luck, Generation X and the Millennials will benefit from seeing the impact of not planning early. But the Boomers have to deal with it now. The switch from pensions to defined-contribution plans like 401(k)s also affected Baby Boomers, requiring many to take charge of their own retirement savings.

Is This a Crisis?

Whether or not this can be called a crisis depends on which Boomers are being discussed, including the types of assets they can access. Boomers who own their own homes in an area with a lower cost of living may be able to live on quite a bit less than a rent-paying retiree in a major metropolitan area.

For many retirees, leaving work can mean a sometimes drastic lifestyle adjustment.

“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,” says Mark Hebner, president and founder of Index Fund Advisors, Inc. “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.”

The Bottom Line

For those depending on Social Security benefits alone, with little to no other savings, maintaining a comfortable lifestyle in retirement will likely be difficult. But whether their retirement is in crisis depends on the person, along with several factors, including where they are living and their ability to make lifestyle adjustments.