Baby Boomers: Ask These 3 Questions Before Spending Down Your Retirement

Thanks to advances in modern medicine and a much broader range of quality-of-life options, Baby Boomers are experiencing substantially longer life expectancies than previous generations. As a result, current retirement savings amounts that may be adjusted for inflation may still prove to be insufficient for the maintenance of lifestyle and healthcare in one’s golden years. Other circumstances and presumptions that may have been made even 10-15 years ago may no longer be valid or severely underestimated when compared to recent data reports. 

As a result, Baby Boomers looking to enter or are already in retirement might need to ask themselves the following 3 questions. The respective answers that they find may warrant some tweaks or even radical changes in how they plan to manage their retirement funds.

Mortality and Life Expectancy

Healthier lifestyles and habits may extend life expectancy beyond may retirement account assumptions and capacities unless portfolio adjustments are made.

Retirees should take more personal and specific factors, such as family medical history, any personal history of injury, disease, or detrimental habits (casual drug use, alcoholism, smoking, etc.) and add them to the equation. General statistics often take a mean sample. Cleaner and healthier lifestyles can often pay off in longer than average life expectancies, especially if those habits are maintained in one’s later life.

The following questions may result in disturbing answers, but dealing with reality in a proactive, informed manner is preferable to being caught unaware and in desperation.

1) From what age basis was life expectancy calculated? 

Although the overall population average life expectancy is now estimated to be 79, this number is roughly 8 years longer than calculations made during birth, circa 1945-1964. However, numerous statistical projections still base their calculations on what is now outdated information.

2) Is life expectancy being calculated from current or projected future mortality statistics?

Cohort life tables, which use future projections, maybe a more accurate guide than period life tables, which use current-year data. 

3) What population is being referenced for calculating mortality and survival rates?

Class, education, and income background factors can have a huge impact on one’s life expectancy. In addition to their potential to contribute towards the aforementioned healthier lifestyle backgrounds, socioeconomic factors influence group behaviors that also influence lifestyle habits and choices.

Retirement Management Risks

With longer life expectancies now calculated to outstrip many retirement fund nest-eggs, revisions in projected spending and available cash on hand may need to be implemented. While cutting incidental spending and reducing travel or other larger expenses might be in the cards, retirees need to be aware of the following threats:

• Longer Life, Poorer Health – USC’s Schaeffer Center issued a report that revealed that 80% of seniors have at least one chronic health condition, while 50% suffer from 2 or more. One reason why Alzheimer and Dementia rates have statistically risen as life expectancy increased is that earlier generations tended to perish before these afflictions became widespread problems. Additionally, the now-debunked food pyramid that emphasized carbohydrates over protein has created exponentially larger numbers of Boomer-aged, obese diabetics. 
• Looming Medicare and Social Security Insolvency –  Once thought to be inviolate, profligate spending by the Federal government has resulted in a $36 trillion national debt. Therefore, there is a very real possibility that Medicare and Social Security will have to drastically cut payouts in the future or risk total insolvency.
• Inflation – The vast bulk of Boomer retirement accounts were initially established on the premises of Reagan-era economic growth and low inflation. Few predicted that a Biden presidency would revive Jimmy Carter level inflation, which has devastated the buying power of the US dollar and continues to do so, albeit at not as fast a pace as during 2021-2024. Until new policies can be implemented by President Trump to restore the high economic growth and lower energy prices of his previous administration, stretching retirement dollars continues to be a major concern for at least the near future.

Some Suggested Helpful Protocols

SEP or other retirement plans where employers will match contributions are crucially important for Baby Boomers who are still employed full-time for their future retirement funds.

• For any Boomers who are still employed, it might behoove them to delay retirement and to contribute as much as possible to any employer-matched SEP 401-K, SEP IRA or other plan to maximize inflows. Additionally, establishing HSA accounts should take priority if not already a part of their portfolio. 
• Portfolios that have been focused on growth might wish to consider shifting a percentage allocation to high yield and stable priced REITs, BDCs, or ETFs for additional liquid income without the need to liquidate stock positions. 

This article should be construed solely for informational purposes. 24/7 WallStreet suggests seeking the advice of a financial retirement professional for more detailed consultation.