If you’re a Baby Boomer (born between 1946 and 1964), your kids have moved out (you hope!), your house is paid for—or nearly so—and you can see the end of a long career on the horizon. Perhaps the next thing on your agenda is retirement. The question is, “Are you ready?” Baby Boomers have some unique challenges, making it tough to answer affirmatively for some.
Savings Are Lacking
The biggest problem is a lack of retirement savings. Research from GoBankingRates found that 30 percent of Boomers over the age of 55 had no retirement savings at all. About 26 percent had less than $50,000 saved and, overall, 54 percent said they lacked sufficient retirement funds.
Counting on Social Security
Not surprisingly, half of retirees will end up living off Social Security benefits that in January 2017 averaged $1,317 per month. Social Security was only designed to replace about 40 percent of pre-retirement income. This will leave many Boomers where more than 25 million older Americans already are—living at or below the federal poverty level.
Retirees today, unlike their counterparts 30 years ago, will not be able to rely on Social Security plus employer-provided pensions and healthcare benefits to carry them through their later years. Making the problem more acute: Those years may well last much longer, with many Boomers expected to live well into their 80s and 90s. The economists call this “longevity risk.”
Increased Healthcare Costs
A longer lifespan brings increased healthcare costs. HealthView Services says when you include out-of-pocket costs not covered by Medicare, a healthy 65-year-old couple today could have $377,000 in healthcare costs in retirement, not including the cost of long-term care.
Spending More, Not Less
Although many retirees say they believe they could live comfortably on 70 percent of their “work-related” income, about half of them end up spending more in retirement, not less. If this were only wealthy retirees, it wouldn’t be so bad. Unfortunately, this phenomenon cuts across all income levels.
Saddled with Debt
Many Boomers go into retirement saddled with debt, including a mortgage, car loans and balances on credit card accounts. In fact, debt held by Americans aged 50-80 increased by 59% from 2003 to 2015, according to the New York Fed. About 30 percent of homeowners 65 and older still had a mortgage in 2013. Not that pre-Boomers are any better off: Federal Reserve data indicate that up to 21 percent of seniors age 75 and over had mortgage debt in 2011.
Lost Jobs and Investment Opportunities
Many Boomers lost stable, high-paying jobs in the Great Recession. This caused them to pull funds from their retirement accounts, even though it came with a stiff 10 percent early-withdrawal penalty plus income taxes. Not many made it through the financial crash untouched. Most lost some or all of their savings. Few could take advantage of the bull market that followed the recession.
What to Do Before You Retire
If you’re still working and concerned about not being quite ready to retire, there are some things you can do. For starters, increase contributions to your workplace 401(k) if you aren’t at the max. If you can save more, open an IRA and contribute to that.
Create a retirement budget that includes potential Social Security benefits plus any pension you may have coming. Figure out how much you will need to withdraw from your nest egg to get the final number up to 80 percent of your pre-retirement income. If it’s not quite there, adjust some of your planned discretionary spending.
As You Enter Retirement
If you are lucky enough to own your own home and live in an area where living expenses are low, you may be OK. If not, think about selling, downsizing and/or moving to a less expensive neighborhood. Consider working part time. Many, if not most, retirees do so anyway. There’s work to be had, and the extra income can make a huge difference in your retirement lifestyle.
You may want to increase the percentage of equities in your portfolio—even in retirement. In today’s environment many retirees are finding the old rules about portfolio management do not always work.
Ultimately, Boomer retirement may look different from what you thought it would. Some say it may look more like your grandfather’s retirement, a time when extended families grouped together, with older members helping younger members and vice versa. Your retirement may include part-time employment, more contact with family and making meaningful contributions to the lives of those you love. Who wouldn’t like that?