Personal Finance

Too Little, Too Late? The Reality of Baby Boomers Trying to Catch Up on Retirement Savings

John Seetoo

Published: December 28, 2024 6:43 am

24/7 Wall Street Key Points

• While 44% of Baby Boomers have saved over $250,000 for retirement, it is estimated that nearly 66% will have difficulty maintaining their current lifestyles in retirement.
• High recent inflation, the dot-com bubble, the subprime mortgage banking meltdown, and stock market crashes, combined with a lack of financial literacy and overoptimism on the capacity of social security, are all contributing factors to the Baby Boomer retirement shortfall.
• Baby Boomers who wish to salvage their retirement financial situations have limited, but viable avenues through which they can still resolve their shortfalls to at least a nominal level. 
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Baby Boomer Retirement Chasm?

Baby Boomers have led some of the most profound cultural and economic changes in US history since coming of age during the late 1950s. The last of the Boomers reach retirement age in a few years, and they represent a very disparate demographic as far as retirement is concerned. A comprehensive collection of surveys has found that while 44% of Boomers have managed to save over $250,000 for retirement, the rest are in considerably worse financial straits:

• 26% have under $25,000 saved.
• 10% have zero saved. 
• 15% have zero home equity. 
• 24% have defined pension plans.
• 30.4 million people are calculated to enter retirement between 2024 and 2030, the largest ever in history.
• An estimated two-thirds of Boomers will be unable to financially maintain their current lifestyles during retirement.

Based on current life expectancies and the 4% benchmark, which is probably too low, in light of inflation from 2020-2024, the 30-year average nest egg needs to be over $1.2 million, meaning that even many of those with over $250,000 in retirement savings will face shortfalls. The number of people entering retirement is unprecedented, and the demands on resources for those unable to financially afford their retirements will result in many hardships. Boomer retirement by 2030 is expected to add as much as $347 billion in Medicare and Social Security outlays, although mortality of the oldest Boomers will eventually reduce the extra Social Security costs by 61% and Medicare’s extra costs by 58%.

Historical Retirement Shortfall Causes

While a percentage of Baby Boomers suffer from insufficient financial literacy, there are a number of historical events and other circumstances that have created the retirement savings shortfall. Dating back from 2000 to the present:

• The Dot-Com Bubble Crash – The over-speculation in technology stocks during the early stages of the internet and digital age led to “sequence of returns risk” for those Boomers close to approaching retirement. The losses forced some to delay retirement or eschew growth investments, resulting in exponentially smaller principal amounts for future withdrawals.
• The Subprime Mortgage Bank Meltdown and Recession – The 2008 subprime mortgage crisis was devastating to many retirement accounts. This was because the Fannie Mae, Freddie Mac, and other US government agency affiliations qualified many of these subprime mortgages for ERISA pension investment and other accounts which only were restricted to “safe” investments.  Subsequent panic selling sustained deep losses for many accounts, and gun-shy Boomers were reluctant to invest in growth, and locked themselves into inordinately low interest rate fixed-income investments. 

• Bidenomics Inflation 2020-2024 – Panic selling and market gyrations on Wall Street in early 2020 was a precursor to rampant billions in overspending by the Biden Administration and Congress on the Ukraine War, lawfare against President Donald Trump, and unconstitutional illegal alien migrant perks and benefits ballooned the US national debt to over $36 trillion. The over-printing of money to pay for these entitlements has dramatically debased the US dollar. The resulting inflation has seen costs for food, fuel, and shelter rapidly escalate to extreme levels, with the buying power of US citizens shrunk by over 50% in some instances, and a Fortune article found that many retirees’s IRAs had dropped over 23% due to withdrawals to pay inflated prices for staples and necessities.
• Unrealistic Expectations From Social Security – Contrary to what many Baby Boomers had mistakenly believed, social security, at best, is intended to only cover 40% of retiree living expenses. The days of retiring comfortably on social security ended decades ago. The added demands on social security, combined with Congressional overspending of social security funds for pork and other unrelated projects, has led to concerns over social security insolvency within the next ten years if drastic remedial measures are not taken. Unfortunately, only 26% of retirees have a backup plan in case social security goes belly-up. 

It’s The Two Minute Warning, But The Red Zone and a Score is Within Reach

While the situation is dire, those who are still working but approaching retirement can still play some catchup to hopefully salvage their retirement finances. Perhaps not to the point where they can live in luxury, but where they can comfortably live, and avoid destitution. If retirement was a football game, late-era Boomers in this category. The reality is that those who are employed still have a chance to score a win, as the Red Zone is close, but the clock is running out. Those who may have already retired who can rejoin the workforce in a part-time capacity may also have time remaining. The most important steps to immediately take include:

• Budget Creation – A realistic budget to cover a life expectancy for the next 30 or so years that focuses on essential expenses needs to be created. Spending needs to calculate and cut out any wasteful or extraneous outlays. Once this has been accomplished, only then should discretionary spending allowances be allocated.  Lifestyle adjustments and downsizing should be instituted according to what kind of income and retirement savings will be available come retirement time. An emergency fund needs to be factored in as well. 
• Relocation considerations – If retirement plans involve relocating to another city or country where the cost of living is lower, this should also be factored into the budget. For retired couples, considerations such as access to food, housing, medical care, and transportation should be researched in advance and then assessed accordingly. Foreign relocation should also factor in legal factors for ex-pats, such as visas, forex, and other considerations unique to the locale in question.
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• Maximize remaining 401-K and IRA contributions –  Any retirement accounts currently established should be maxed out for the remaining employment years. Cutting expenditures to emphasize savings now is a good practice to prepare for future retirement where income may be minimal. Roth accounts or any holdings with post-tax funds should be earmarked for the earliest withdrawals when needed. Any pre-tax accounts should be designated to be tapped for last, hopefully, to continue growing until RMD age arrives. 
• Review Insurance Policies – Long-Term Care, Medical, and Disability policies all need to be current and in good standing. Premiums to maintain these should all be a part of the budget. 
• Medicare and Social Security filings – research filing dates and guidelines towards maximizing benefits, which often increase the later the initial filing age, since the amounts lock in once filed. 

A high-living couple who were about 10 years away from retirement had almost zero emergency and retirement savings. They were almost wiped out when the husband’s two largest freelance clients stiffed him for the equivalent of about a full year’s salary. With no backup savings, they had to cut lifestyle expenses, the husband got a salaried position at a larger firm, and they built up their reserves to a comfortable level before recently retiring.  A combination of focused thrift, aggressive savings, and disciplined budget adherence got them out of the fiscal danger zone. 

Their advice tips mentioned the above-listed suggestions. They also added:

• Start a side hustle for extra income.
• Monitor investing fees and comparison shop for the best deals.
• Aggressively cut and eliminate debt as a priority.
• Changing the mindset from spending to saving is the most important step to staying on track.

This article is intended to be solely construed for informational value. Anyone seeking more comprehensive advice should consult a financial retirement professional.