Personal Finance

Are Baby Boomers Mismanaging Their Retirement Funds?

Business financing accounting banking concept. Businesswoman hand doing finances and calculate on desk about cost at home office. Woman working on desk with using calculator, finance accounting.
Doidam 10 / Shutterstock.com
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive
compensation for actions taken through them.

Saving for retirement is one of the most crucial life goals because everyone will eventually need to leave work, and will need money to live on when they do. For Baby Boomers who haven’t quit the 9-5 yet, retirement is drawing nearer. This means it’s becoming especially important to be financially prepared for it.

Key Points from 24/7 Wall St.:

  • A Transamerica study shows many Boomers are keeping retirement money in the bank.
  • This limits returns and makes it harder to invest for retirement.
  • It also means passing up tax breaks that could help you save.
  • Also: Take this quiz to see if you’re on track to retire (Sponsored)

Unfortunately, many Boomers are potentially mismanaging their retirement funds, and their decisions could have disastrous consequences when the time comes for them to live off their nest egg. Here’s what many Boomers are doing wrong, along with some tips on how to fix the issue.

Baby Boomers risk making a big retirement funding mistake

According to the Transamerica Center for Retirement Studies, Boomers may be putting their retirement money in the wrong place.

The Transamerica research revealed that when it comes to retirement savings outside of work, 75% of Boomers say their money is in a bank account. That’s compared to only 53% who said it’s in an IRA, 37% who said it’s in a primary home and 20% who put their funds into an annuity.

Boomers were more likely than other generations to say they’re socking away their retirement savings in the bank, but unfortunately, this is most likely not the place that most of these funds should be.

Why a bank is the wrong place for retirement money

For Boomers relying on a bank to hold their retirement funds, there are a number of problems with this approach.

First, if you’re investing in just a regular bank account, you’re missing out on tax breaks that you could be getting if you instead put the money into an IRA, high-yield savings account, or other tax-advantaged accounts. Passing up free help from the government makes saving enough harder.

There’s also another problem with using a bank account as a place for retirement savings. You’re going to be very limited in the ROI you can earn. Many checking accounts pay no interest at all on invested money and, while high-yield savings accounts do pay interest, the potential ROI is way lower than the returns you’d get if you put the money into the market and bought something pretty safe like an S&P 500 index fund.

Finally, the third problem is that if you just have retirement savings in the bank, it’s too easy to end up spending the money on other things and comingling it with other assets. If you have money in a dedicated retirement plan like an IRA, chances are good you’ll leave it alone until you’ve actually left work and devised a withdrawal strategy. That’s not the case if it’s just sitting in your checking account.

Should Boomers have any retirement money in the bank?

emholk / iStock via Getty Images

Since Baby Boomers are nearing retirement or, in some cases, have retired already, there is nothing wrong with having some liquid savings that’s accessible and not at risk. In fact, it’s usually smart to have a few months or even a year or two of living expenses ready to be used in case you need to live on it during a market downturn.

However, this is the only retirement money you should have in a bank account. And, you may not even want that much of this money in a regular savings or checking account when you could opt for a CD ladder that would still provide regular access to the funds while giving you a (likely) higher guaranteed ROI.

Ultimately, Boomers who are putting their retirement savings in the bank should seriously think about whether that’s the right option. A financial advisor can provide advice on whether this money should be elsewhere and, if so, about where exactly it belongs to provide the best balance between risk and rewards.

Get Ready To Retire (Sponsored)

Start by taking a quick retirement quiz from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes, or less.

Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.

Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future

Get started right here.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.