Personal Finance

The typical baby boomer is facing at a $900k "hole" in their retirement savings

Rich Duprey

Published: October 25, 2024 8:58 am

Last Updated: October 31, 2024 12:09 pm

Like everything else, the cost of a comfortable retirement is rapidly rising. Just four years ago, Americans of all ages estimated they would need $951,000 to retire comfortably. Today, after years of rampant inflation, that figure has ballooned to $1.46 million, a 54% increase.

Considering the cumulative inflation rate over that period stands at 21.6%, it is likely people will be ratcheting up their expectations again next year. But that highlights an even bigger problem people will face: the gap between what they think they will need to save and what they actually have saved will widen further.

According to a study by life insurer Northwestern Mutual, Americans aren’t saving nearly enough to fund their retirement. Despite needing nearly $1.5 million to live, they have only saved $88,400, a yawning chasm of $1.37 million.

It is a particularly acute problem for the Baby Boomer generation because they are much closer to retirement. 

24/7 Wall St. Insights:

• Americans are shockingly unprepared for their retirement years, with Baby Boomers worse off because they have less time available to correct the problem.
• There is a wide and growing chasm between what people believe they will need to live comfortably in retirement and what they have already saved for it.
• The problem is especially acute for Baby Boomers who, although having more money saved than other generations, still have a massive gap to fill for what they will need.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

A massive hole to fill

The Northwestern Mutual study broke down the figures by age groups. They surveyed 4,588 U.S. adults aged 18 and older and broke down the answers amongst Baby Boomers, Gen X, Millennials, and Gen Z.

The latter group, the youngest respondents, naturally feel they are going to need more to retire comfortably and have less saved. They foresee needing $1.63 million in retirement, but have just $22,800 saved so far, a wide $1.6 million gap. And that’s okay. They have decades to go before they hit retirement age. They’re are in the early stages of their wage earning potential and can save more as they get older and their income increases.

Boomers, though, don’t have that luxury. They have retirement staring them in the face, but are looking at a massive hole that won’t be easy to fill.

Study data shows that although Baby Boomers currently believe they will need $990,000 to retire comfortably, or almost 40% less than Gen Z, they have only saved $120,300, an $870,000 difference.

So despite having five times more saved than their younger cohorts, they only have a few years to close the gap. It indicates Boomers are going to either have to defer retirement until later or work through their retirement years, if they can even retire at all.

And unfortunately, the situation isn’t improving.

Doing more in less time

As mentioned earlier, government policies are causing inflation and the cost of living to continue rising. Just because the annual inflation rate is down from its historically high levels of just a couple of years ago doesn’t mean costs aren’t still going up.

Boomers need to set aside a greater percentage of their income if they want to significantly narrow the difference between what they have and what they’ll need, but rising prices does afford them the opportunity to do so.

So while Gen Z is starting to save earlier than Millennials, Gen X, or Baby Boomers, they are also looking to retire earlier than almost every generation before them (age 60). Boomers, on the other hand, started saving later than anyone and now believe they won’t be able to retire until at least 72 years old. And even then, they aren’t ready. 

Only 37% of those studied have planned for the possibility they will outlive their savings. While that could mean they think they can still make it across the finish line in time, which doesn’t seem feasible, they may also be in for a rude awakening.

A call to action

It is a yellow flag for younger generations. They should see this as motivation to save more. An inflationary environment means it is more essential than ever to live below your means, scrupulously set aside money for retirement every month, and use the power of time and compounding to your best advantage.

Entering what should be your retirement years with a $900,000 deficit staring at you is not comforting. You must use all available means to ensure you are not one of those who will outlive your savings or be forced to work until you literally die. 

There is a solution and it requires dedication. But by preparing for the worst, you will likely avoid the hardships that outcome will bring.

Editors note: Cumulative inflation number was originally over-reported in an earlier edition of this article but has been corrected in the post.