Personal Finance

Baby Boomers Can’t Afford Their Dream Retirement

David Beren

Published: December 4, 2024 1:38 pm

Key Points

• Many baby boomers cannot afford their dream retirement in today’s economic climate.
• Baby boomers are slowly unretiring to make part-time income.
• Some baby boomers sacrifice retirement savings to help grown children or even older parents.
• Also: Are You On Track to Retire? Take This Quiz and Find Out (Sponsored)

According to AARP, 52.5% of baby boomers, or those who will reach the Full Retirement Age of 65 between 2024 and 2030, don’t have enough money to retire. In fact, this group of people has less than $250,000 in retirement assets and will be forced to primarily rely on Social Security to survive, pay their bills, and even travel on a limited basis. 

Considering that the average Social Security benefit for baby boomers is expected to be around $22,000 per year, there is a retirement crisis. With 4.1 million Americans reaching retirement age every year for the next few years, this presents a significant problem. The big takeaway is that millions of Americans’ living standards are about to go way down, all but bursting the bubble for many with a retirement dream. 

Not Enough Savings

First and foremost, the biggest issue with millions of Americans’ retirement dreams disappearing is the understanding many have inadequate savings. With the knowledge that over half of baby boomers can’t afford their dream retirement, another 14.6% of those with assets between $250,000 and $500,000 believe they “will strain to meet their financial needs.” This means almost 2/3 of all baby boomers are unsure how to handle the cost of living while retired. 

A lack of savings and financial planning is the biggest factor affecting a dream retirement. The “silver tsunami,” as it’s known, don’t have enough money saved in their Individual Retirement Accounts (IRAs) or their bank accounts, pensions, annuities, and other non-retirement accounts to help provide a more stable living upon retirement. 

Financial advisors generally indicate that someone retiring should plan to have between 70 and 80 percent of their working income to maintain their current lifestyle. Today, Social Security is only designed to replace about 40 percent of your income, which leaves a significant shortfall. Pam Tourangeuau is one such individual. At 68, she doesn’t have a sizable enough nest egg to retire from her part-time work as a therapist, leaving her to continue working for years to come. 

Rising Healthcare Costs

Understanding that healthcare costs are one of the biggest expenses for retirees, the average retired couple will need approximately $315,000 for medical expenses. While Medicare and Medicaid can help, they don’t cover everything, including long-term care. 

Medicare, in particular, has significant gaps that only allow about 80% of medical costs to be covered for hospital stays or doctor visits. This means the rest of the financial burden is on the individual. As healthcare costs continue to rise, out-of-pocket expenses for doctor visits and prescription medicine are increasing the financial strain on baby boomers. 

For those on a fixed income, rising healthcare costs can quickly add up and destroy any hope of a dream retirement in the short term. There are far too many stories like Kimberly Mullin, who drained her savings to help pay for cancer treatments a few years before Medicare would kick in. When you consider her mother had cancer at the same time, the two spent around $400,000 in medical costs out of pocket, leaving Mullen to couch surf while working part-time at a truck stop in Kentucky. 

Unexpected Financial Responsibilities 

It isn’t easy to accept that 26% of all baby boomers who are not currently retired say they never expect to be able to retire. Between inflation affecting everyday living and other unexpected financial responsibilities, baby boomers’ cost of living is significantly burdened.

One of the most common unexpected burdens is when adult children need help, they turn to their parents. As a result, baby boomer parents spend tens of thousands, if not hundreds of thousands, helping with living expenses, student loans, and more. There are multiple stories of individuals like a 64-year-old father in Florida who used his retirement savings to help his daughter purchase her first home, leaving him unable to afford retirement. 

In addition, you have members of the baby boomer era, known as the “sandwich generation,” who have taken on financial responsibility for their parents and their children or grandchildren. According to AARP, almost 40% of Baby Boomers provide financial assistance to adult children and caregiving expenses to elderly parents. 

Finding Financial Relief

Downsizing Your Home

For many baby boomers, one of the best ways to find financial relief is to downsize and sell their home. A home is often the biggest asset any individual or family owns. As housing prices have increased nationwide, baby boomers can find significant home equity that can be converted into retirement savings. 

The challenge with downsizing is finding alternative, more affordable housing. Because of rising housing prices, this isn’t easy, but it can be done and is something many baby boomers need to consider seriously. Even going from a home to a condo, which requires less overall maintenance, should be on the table as a way to cut expenses. 

In addition to the overall benefits of downsizing, such as less space to worry about, you also have to consider lower property taxes, decreased maintenance costs, and reduced utility bills. Moving into a 55-and-over community may also introduce an HOA that covers landscaping and some home repairs, which adds more financial freedom for the retiree. 

Part-Time Work

What’s unique about this scenario for baby boomers is that they, not Gen Z, are now the main generation of Americans who work multiple jobs to make ends meet. Approximately 1,303,000 people between 55 and 64 worked multiple jobs in 2023. Unfortunately, having this many baby boomers working part-time is a hard reality, and many don’t think they can afford their dream retirement or any retirement at all. 

Perhaps more concerning is that around 14% of baby boomers have “unretired,” with another 4% considering this action to continue affording retirement. What’s driving this action is that 24% of baby boomers have said their retirement income isn’t enough to survive, leading them back into the workforce with part-time work at jobs like Uber, DoorDash, and other trades. 

In total, 20% of Americans 65 and over are employed, which has doubled from 30 years ago. This means around 11 million Americans are working today and makeup around 7% of all wages and salaries paid by employers. If you turn back the clock to 1987, this number only comprised 2% of wages and salaries in the United States. 

Ultimately, re-entering the workforce part-time is a good solution to boost overall income, which might help offset the overall increases in expenses a baby boomer is feeling from medical costs and inflation. 

Relocating

While not universally true, many retirees have begun the process or have already moved to states like Florida, Texas, or Tennessee, which don’t have a state income tax. Moving somewhere in the Midwest or Southwest may also help with overall housing costs as opposed to more expensive property in the coastal states. 

Some retiree data has shown that couples who move from New York City to North Carolina can cut their monthly expenses by as much as 40%. This money can then fund a more active retirement, allowing for more traveling and enjoying life. 

Separately, consider moving out of the United States to locations like Mexico or Portugal, which have a lower cost of living, more affordable healthcare, and welcome expats.