Personal Finance

3 Big Ways Baby Boomers are Setting Themselves Up for Disaster in Retirement

Christy Bieber

Published: December 14, 2024 12:32 pm

Key Points from 24/7 Wall St.:

• Baby Boomers are planning to work until 70, but many won’t be able to.
• Many Baby Boomers think Social Security is going to provide more money than it will.
• Baby Boomers don’t have the savings to support themselves in retirement, despite getting close to leaving the workforce.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Baby Boomers are nearing retirement, if they aren’t there yet. Unfortunately, this time of life may not be such a great one for members of this generation. That’s because far too many Boomers are making decisions that could create a lot of financial problems for them later.

Here are three big ways retirees are setting themselves up for a huge disaster in their later years.

1. Their work plans aren’t realistic

One of the first big problems Boomers are creating for themselves is setting an unrealistic goal for how long they plan to stay in the workforce.

According to the Transamerica Center for Retirement Studies, 56% of Boomers anticipate that they will work until they are at least 70 years old or that they won’t ever retire at all. While that may sound good on paper, the reality is likely to be very different.

The average age of retirement is 65 for men and 63 for women, according to Empower. Often, people retire at an earlier age not because they want to — or are financially ready to — but instead because they have no option. They may have to stop working because of their health or because another family member’s health issues force them into caregiving. Or, they may simply lose their job and not find another.

Planning to work until 70 and ending up retiring years earlier can be a big problem if your nest egg hasn’t had time to grow, or if you get forced into claiming Social Security too soon and shrinking your benefit for life.

2. They’re anticipating over-relying on Social Security

Boomers are also being overly optimistic about what Social Security is actually going to do to provide them with retirement security.

The Transamerica report revealed that 43% expect Social Security to be their primary source of income when they retire. The issue is, most people need to replace at least 80% to 90% of pre-retirement income and Social Security only replaces about 40% (and replaces even less for high earners).

If you don’t want to be stuck on the low end of this spending range, you’re going to need another primary source of funds. Social Security can supplement it, but without a pension, savings, or both, retirement isn’t going to be a very fun time.

3. They aren’t saving enough

Finally, the last big issue is that Boomers simply do not have enough money saved to support them, even with Social Security to help. The median retirement savings for members of this generation is $194,000.  And they don’t have a lot of time left to build up this balance.

If you go into retirement with a $194,000 nest egg, that is going to produce around $7,760 in annual income. That’s assuming you follow the 4% rule, which says limiting withdrawals to 4% of your account balance should allow you to preserve your wealth. It may produce less, as some experts now suggest you should take out just 3.7% to avoid draining your account too fast as projected future returns are lower.

The bottom line is, the typical Boomer simply does not have the funds to have the retirement they deserve. That’s going to become a big problem if they can’t keep working or they realize too late that Social Security isn’t enough.

If you’re a member of this generation and you have savings near the median, it’s time to realize these harsh truths and get aggressive about investing for your future. Otherwise, you could be left with big regrets.