Retirement Planning for Baby Boomers: It’s Not Too Late

American Baby Boomers born between 1946 and 1964 were the first generation to take charge of their own retirement planning, with the advent of the 401(k) in 1978 – when most Boomers were in their 20s – ushering in the era of “defined contribution” savings. Traditional company pensions would quickly decline and disappear for most workers.

Yet lack of financial education, as well as economic and social upheavals, kept many members of the Baby Boomer Generation from participating in workplace retirement plans. Now that most Boomers are retired or close to ending their careers, the inability to save is clouding their prospects for a comfortable retirement.

Boomers still hold the majority of the nation’s wealth – 52.7% compared to their share of households, according to data from the Federal Reserve Bank. But retirement saving among the Boomer generation falls far short of anticipated needs, with only 55% of Boomers have saved anything at all. Of those who have saved, roughly one-quarter have less than $100,000 in retirement accounts. The average retirement savings for the Baby Boom Generation is approximately $152,000.

These numbers fall far short of the widely recommended savings of 11 times annual salary at the time of retirement.

Role of Social Security in Retirement Planning

For many Boomers, Social Security will provide a significant portion of retirement income. But with monthly Social Security payments averaging just $1,543 – compared with monthly income from a job averaging about $5,000 – the need for supplemental retirement savings is clear.

Strategies for Retirement Finances if You Have Not Saved for Retirement

Even if you have not been able to save, you can act now to make your retirement assets as manageable as possible:

• If possible, delay retirement until age 70, when you can collect your maximum benefits from Social Security. Talk to a Social Security advisor about the best strategy, especially if you are married and your spouse also will be drawing benefits. There are many ways to approach Social Security, and some can help you maximize your household income and benefits .
• Consider whether to continue working, at least part-time, beyond full retirement age. If you can hold off on drawing Social Security, your monthly benefit will increase until you reach age 70.
• Reduce your debt as much as possible. If your house is paid off, don’t borrow against it. If it is not yet paid off, plan to pay it off as soon as possible.

Strategies for Retirement Finances if You Have Saved Modestly for Retirement

If you have managed to save a nest egg of $100,000 to $500,000 for retirement, congratulations. Making that money last for the 20 years or so that you will need it will be a challenge, but it can be done.

Assuming your retirement fund resides in a tax-deferred account such as a 401(k) or an Individual Retirement Account (IRA), you will be subject to Required Minimum Distributions (RMDs) when you reach age 72. This means you will have to take an annual withdrawal from your savings – whether or not you think you need to – based on a formula determined by the Internal Revenue Service. That withdrawal will be subject to income tax at your current marginal tax rate.

For example, a person who is 72 this year and has managed to save the average amount for a Baby Boomer retiree – $152,000 – would be subject to an RMD of $5,937. Assuming this retiree is subject to a 15% marginal federal tax rate, that would leave $5,046 – or $420 per month – to live on in addition to Social Security. These funds also may be subject to state income tax, depending on where you live.

Baby Boomer Finance Strategies if You Have Saved Comfortably

If you have managed to save more than $500,000 for retirement, you’re doing great. Keep it up if you are still in the workforce.

The rule of thumb in retirement planning is that you want to have at least 11 times your working salary saved for retirement by the time you quit working. That sounds like a lot, and it is. How is that figure reached? Assuming retirement at age 65, the average man will live 22 years in retirement and the average woman 23 years. It is estimated that approximately 16% of the salary you made during your working years is needed to meet expenses during retirement. Social Security generally covers about 5%, so the remaining 11% needs to be covered by retirement savings.

In truth, few members of the Baby Boomer Generation have saved that much, and many are making up for it by working longer, at least through age 70 so they can maximize Social Security benefits. Many Boomers also are continuing to work part-time even after drawing Society Security.

• If you are married, talk to a Social Security advisor about the best strategy for drawing benefits before you actually apply for them.
• If you can delay RMDs until age 72, that will give your retirement savings more time to grow, enabling you to receive higher payments once you do draw the distributions.
• If you have taken out any loans against your retirement plan, get them repaid as soon as possible. You want that money to continue growing until you need it.
• If you are still working, sit down and figure out what your financial needs will be in retirement and create a monthly budget. You won’t have commuting costs anymore and you won’t have to buy professional clothing or pay association or union dues. But retirement carries its own costs. Is your life insurance premium paid by your employer? That will probably end when you retire, so consider what your long-term care insurance needs are and plan for them. Perhaps you’ll want to travel, play golf, start a hobby, or take classes at a local college or school. Factor those, as well as health care costs, into your budget.

Our Financial Advice Experts Will Help You Figure Out the Best Plan for Retirement

This is a time in life you have planned for and looked forward to for a long time. No matter what your retirement planning situation is, it will be better if you do even a little advance planning or have a backup plan to ensure financial security for you and your family.

If you would like to explore our services and options for saving for retirement and maximizing your retirement investment, contact our team of experienced financial planners and one of our advisors will assist you.

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