Personal Finance

3 Things That Might Keep Baby Boomers Up At Night

Chris MacDonald

Published: December 9, 2024 9:02 am

The quiet hours of the night can often bring reflection for anyone. No matter what stage of life we’re in, sleepless nights are the worst. And for those baby boomers worried about retirement, thoughts of what could have been or what’s to come may be difficult to avoid. 

Turning the page on one chapter of life and moving to another is rarely as easy as the media makes it out to be. All the checklists and recommendations financial experts put out there of saving x% each year for retirement, or putting one’s retirement savings into one account versus another, may not fit with an individual or household’s given reality during certain periods of time. Life happens, and as they say, “best-laid plans…”

That’s not to say there aren’t a few meaningful things baby boomers can do to keep regret at bay in one’s golden years. Recent studies reveal that nearly 45% of Baby Boomers have no retirement savings, so there’s a large discrepancy between saving and spending habits across households that drive many of the divergent outcomes we’re seeing in the numbers right now. 

Let’s dive into three of the key pain points many baby boomers are experiencing right now, and what can be done about each.

Key Points About This Article:

• Planning for retirement sounds like a simplistic and straightforward mathematical exercise, but it can be a messy process throughout life.
• However, there are some common threads with what many baby boomers regret as they move toward retirement – here are three things investors should be aware of.
• Also: Take this quiz to see if you’re on track to retire^(Sponsored)

Inadequate Retirement Savings

For many Baby Boomers, the dream of a truly financially secure retirement feels increasingly out of reach. A staggering number of baby boomers have far less saved than what experts suggest will be needed to maintain the quality of life many expect to have once leaving the workforce. Roughly half of those called “peak boomers” according to a recent study have less than $250,000 saved for retirement, amplifying this challenge. Indeed, for those who grew accustomed to spending up to one’s working salary (for many in the six-figure, or close to six-figure range), that’s roughly two to three years of savings set aside to meet these spending needs. That’s not enough. 

Additionally, the data show an even more bleak picture for the median baby boomer, which has only $194,000 saved for retirement. For the bottom quartile of baby boomers, this number is less than $50,000. Accordingly, the ability for a majority of baby boomers to handle the entirety of their wants and needs in retirement is up for debate, with this shortfall sparking anxiety among many in this age group, for good reason.

There’s always part-time work and/or scaling back one’s retirement plans as potential options if needed. At the end of the day, folks will find a way to make it by. But after decades of blood sweat and tears to get to retirement, many may be longing for more than what they have after years of under-investing in their retirement plans. Loading up one’s 401(k) and IRA plans with catch-up contributions can help with this situation for those who are nearing retirement.

Changes to Social Security

The social security payments so many baby boomers will rely on for retirement don’t stay stagnant. Each year, there’s a cost of living adjustment made to payments to help adjust for higher costs of living over time. In general, these increases follow inflation, with the average Social Security benefit is around $23,000 annually, replacing just 40% of pre-retirement income for most recipients. Again, this goes back to my previous point that most retirees will need to have significant funds set aside for retirement. But unfortunately, the reality is that most baby boomers tend to find themselves relying mostly on social security payments to meet their financial needs, with the annual cost of living adjustments doing little to actually keep up with inflation. 

These concerns have been exacerbated by changes to the system which leave many rightly concerned about the stability and adequacy of relying on social security payments moving forward. For those born 1960 or later, the full retirement age (FRA) has been raised to 67, delaying when baby boomers will be able to access their full benefits. Many are now forced to choose between claiming early with reduced payments or waiting longer to maximize their monthly income, a decision that creates financial strain for those already struggling to make ends meet. And it’s entirely possible that we could see additional changes on the horizon, with many speculating that one of the initiatives the Trump administration (and its so-called “Department of Government Efficiency”) may endorse is raising the retirement age further. We’ll see. 

The impetus for additional changes to potentially come down the pike stem from troubling projections that the social security trust fund could be depleted as soon as 2033. In order for this program to continue to operate, and for benefits to remain at least at the levels they are (with many retirees hoping for continued COLAs moving forward), the government will likely put forward more changes in the future.

Rising Debt Levels

I think one aspect of the whole discussion around making a budget work in retirement that is often ignored (or at least less discussed) is the role debt plays in the equation. Income is one thing, but the other side of the balance sheet – one’s debts or obligations – needs to be factored in to the discussion. 

Unlike previous generations, many in the baby boomer group carry substantial debt, a factor which could add pressure to household budgets attempting to live off of fixed incomes. And factoring in the rising cost of key future obligations such as healthcare and living expenses, this aggregate debt burden could become a much more important focal point for millions of baby boomers looking to retire.

The traditional model of paying off one’s primary residence over 30 years and retiring with a fully paid off house is dwindling, with many baby boomers having been forced (or willingly) tapping their home equity in their adult years to fund a certain lifestyle. Additionally, supporting one’s children in either their education or placed down payments on their own homes may leave many baby boomer couples with little financial cushion to weather economic turbulence or deal with unforeseen expenses in retirement. Debt is leverage, and can compound returns (but also increase risk), and this risk increases with age.

Ensuring that both sides of the household balance sheet are in good order before retiring is key, and this is one important factor I though would be important to point out as a key pain point for many households to be addressed before taking social security.