Baby Boomers have an average of $162,000 in their retirement savings. Here are 3 ways they can maximize their Social Security benefits and boost their retirement income
Baby boomers are exiting the workforce in droves and transitioning into retirement. In the third quarter of 2020, about 28.6 million baby boomers (those born between 1946 and 1964) reported that they were out of the labor force due to retirement.
For many in this generation, they’ve already started to tap into their retirement savings, while others still have a few more working years to grow their nest egg.
How much do baby boomers have saved for retirement?
A recent report by the TransAmerica Center for Retirement Studies found that members of this generation have a median of $162,000 across all of their retirement savings accounts. That’s compared to $33,000 for Gen Zers, $87,000 for Gen Xers, and $50,000 for millennials. The estimated median savings among all workers is $67,000.
Baby boomers also started saving for retirement later than any other generation, on average. The median age for boomers at the start of their retirement saving journey was 35. This is due, in part, to the shift away from traditional pension plans and rise of 401(k) plans in the middle of many boomers’ professional careers.
Challenges boomers face in saving for retirement
Baby boomer savers have had to navigate a shifting economic landscape that has made it more difficult to grow their retirement savings.
“Obstacles baby boomers have faced in saving for retirement include extremely low interest rates on fixed income investments, the dot com crash, the real estate/ financial crisis, the pandemic, and more recently 40-year-high inflation,” says David Rosenstrock, director at Wharton Wealth Planning. “In addition, rising health care costs, increasing life expectancy, caring for aging parents, the potential for reduced Social Security benefits (in the future), and labor force automation are all obstacles to saving.”
Increased life expectancy
An increase in their life expectancy has made it more difficult for boomers to determine how much to save. When the first boomers were born, the average life expectancy was around 63 years old. Today, boomers can expect to live into their 80s.
“How long you live and how much you need to spend on out-of-pocket health care expenses and long-term care are big factors for figuring out how much you will need. Health care costs pose one of the most serious risks to retirement security, so it’s important to understand how to plan for this major expense and navigate the system,” says Rosenstrock.
Uncertainty around social security benefits
In November 2022, the average monthly benefit for retired workers was just over $1,600, but that benefit could be diminished in the coming years. According to the 2022 Social Security Trustees report, retirees will only receive 77% of their full benefit starting in 2034 without additional funding to the social security program. Close to half of the baby boomers surveyed (46%) are more likely than younger generations to fear reductions in or elimination of Social Security in the future.
The Great Recession and the COVID-19 pandemic
Many savers have faced the financial ramifications of both the 2007 recession and the early aftermath of the COVID-19 pandemic, but for boomers who are already in their retirement years or close to it, the impact can be more severe. Many savers dipped into their retirement savings to stay afloat. During the third quarter, the average 401(k) balance at Fidelity dropped an average of 23% from a year ago, according to recent Fidelity Investments research, which handles about 35 million retirement accounts. IRA balances dropped nearly 25% year over year and 403(b) account holdings—retirement plans typically used by nonprofits—were down 21%.
3 Ways baby boomers can increase their retirement savings
For Boomers who are looking to boost their retirement savings, it’s not too late. However, it’s important to be strategic about the money moves you’re making so close to your golden years.
- Take advantage of catch-up contributions. For savers who are over the age of 50, the IRS allows them to make additional contributions to their retirement savings accounts. For 2023, the contribution limit is $6,500 (plus the additional $1,000 catch-up contribution). If you haven’t saved as much as you need to retire comfortably, these extra contributions can ensure that you save as much as possible in your final working years in a tax-advantaged way.
- Delay taking Social Security. Tapping into your Social Security benefits as soon as you hit age 62 can be tempting, but it is more beneficial to hold off if you can. “The earliest age you can sign up for Social Security is age 62, but if you file before full retirement age (as defined by the IRS), you’ll be looking at a reduced benefit of approximately 75% of the amount you’re eligible for,” says Rosenstrock. “Full retirement age depends on your year of birth. You can also delay your filing past full retirement age. For each year you delay your benefit, up until age 70, your benefit will grow 8% enabling you to receive a maximum of up to approximately 132% of your regular benefit amount.”
- Consider working past retirement age. If the sound of leaving the workforce altogether isn’t appealing to you, you might consider working in some capacity even after you’re reached retirement age. “Working past the traditional retirement age, either part- or full-time, is a great way to stretch and supplement retirement income,” says Rosenstrock. “Delaying retirement can have a significant impact on retirement finances by giving your existing retirement savings more time to grow and shortening the period of retirement you will need to pay for.”
Many boomers are already living off their retirement savings, but it’s not too late to boost your savings and give yourself more of a financial cushion that will sustain you for the rest of your year. By making the most of your tax-advantaged savings accounts, managing your Social Security benefits wisely, and looking for ways to add to your income, you can make sure that you have what you need to retire comfortably.
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