The impending retirement wave of the baby-boomer generation is a reality we cannot ignore. Recent Census Bureau data indicates that 44% of boomers have already reached retirement age, with millions more on the verge of joining them. By 2030, every member of the largest generation entering retirement will be over 65.
There’s a prevailing assumption that boomers, having benefitted from three decades as America’s dominant economic force, will experience a comfortable retirement. The image painted is one of leisurely cruises and luxurious living in well-appointed homes, fueled by the accumulated wealth of a generation. Federal Reserve data supports this notion, revealing that while Americans over 65 constitute just 17% of the population, they possess over half of the nation’s wealth, totaling $96.4 trillion.
Elders Are Not Saving Enough for Retirement: Is That a Problem?
This sunny narrative of boomer retirement overlooks a significant reality: a considerable number of older Americans are not financially prepared for their later years. Despite the overall wealth of the generation, wealth inequality among retirees has worsened in the past decade. Many boomers lack sufficient funds to cover long-term care expenses, and a staggering 43% of those aged 55 to 64 had no retirement savings in 2022. In the same year, 30% of individuals over 65 faced economic insecurity, earning less than $27,180 for a single person. With younger boomers less financially prepared for retirement than their older counterparts, the issue is poised to intensify.
As the boomer generation continues to exit the workforce, it will exert pressure on healthcare systems, government programs, and the economy. This translates to a heightened financial responsibility for young people in caring for their aging parents, increased government spending on the elderly, and potential economic growth deceleration.
Rita Choula, Senior Director at the AARP Public Policy Institute, noted, that the system “has failed in thinking from a long-term perspective.” Unfortunately, this failure is now becoming a burden borne by younger generations.
Are Boomers Ready for Retirement? The Number Are Not Quite Nice
Certainly, while it’s true that some boomers are poised for a comfortable retirement, it’s crucial to delve beyond the surface numbers. The Federal Reserve’s recent Survey of Consumer Finances highlights an average net worth of $1.8 million for individuals aged 65 to 74, making them the wealthiest group in the survey. However, relying solely on average net worth can be misleading, particularly when a disproportionate amount of wealth is concentrated in a few individuals.
For a more accurate assessment, we turn to median net worth, which provides a balanced perspective by avoiding distortion from the ultrarich. In the same Fed survey, half of Americans aged 65 to 74 reported having less than $410,000 to supplement Social Security and support their retirement, with a significant portion tied up in real estate. The median retirement account for this age group stands at a mere $200,000, indicating that half of individuals aged 65 to 74 have even less in savings. These figures paint a stark reality, revealing that a substantial proportion of boomers may not be adequately prepared for their later years.
In fact, the National Council on Aging estimates that approximately 17 million people over 65 fall into the category of economically insecure. This underscores the need to move beyond aggregate averages and consider the broader financial challenges faced by a significant portion of the boomer population as they approach their retirement years.
What Millennials Can Do to Deal With the Consequences
There are several steps Millennials can take to prepare for the retirement of the Baby Boomers. Firstly, they should start saving as early as possible. Even if they can only set aside a small amount each month, it will accumulate over time.
Secondly, Millennials should diversify their investments. This involves investing in a variety of assets, such as stocks, bonds, and mutual funds. This way, they can reduce their risk and increase their chances of achieving a solid return.
Thirdly, Millennials should be prepared to work longer. They may need to work until they are 70 or even 80 years old to amass sufficient savings for retirement. Taking these proactive measures can better position Millennials to navigate the potential economic impacts of the Baby Boomer retirement wave.