Baby boomers less ready to retire than prior generations

As baby boomers steadily advance into retirement, how are they doing in terms of saving for it compared to previous generations of retirees? In a phrase, not so well. 

Boomers have accumulated less household wealth and carry more debt relative to those who've come before them, according to the Sightlines report recently released by the Stanford Center on Longevity (SCL). Given that boomers will likely live longer and rack up higher lifetime medical costs than prior generations, the inevitable conclusion is that boomers will face some tough challenges during their retirement years.

Let's briefly summarize the sobering multigeneration comparison of assets and debts, then look at potential action steps.

Boomers lag in accumulating assets

The Sightlines report compares the household wealth of four generations as of 2014:

  • Older silent generation, born before 1942
  • War babies, born from 1942 to 1947
  • Early boomers, born from 1948 to 1953
  • Mid-boomers, born from 1954 to 1959

While you'd expect the war baby generation to have less wealth than both the early boomers and the mid-boomers -- since they've been drawing down their savings for more years in retirement -- they actually had more household wealth as of 2014 compared to both boomer cohorts. The result is the same, whether you look at median or average household wealth.

For this purpose, household wealth includes home equity, IRAs, pension benefits, defined-contribution accounts such as 401(k) plans and assets held outside retirement programs. The Sightlines report found that war babies had more wealth in every category except defined-contribution accounts. Note that the results compared assets for groups that were at different stages in their retirement in 2014.

Looking just at retirement savings, war babies were more likely to have positive balances in workplace retirement plans and IRAs:

  • 74.5 percent of war babies had positive balances, compared to 70.6 percent of early boomers and 71.7 percent of mid-boomers.
  • When balances are positive, the median balance for war babies ($280,053) was slightly lower than that of early boomers ($290,000) and much higher than that of mid-boomers ($209,246).

The Sightlines report also examined accumulated savings in workplace retirement plans and IRAs that each of these groups had accumulated by age 50. This age was chosen because at that point, workers have already been employed for a few decades, but most haven't yet started to draw down savings in retirement. Once again, war babies were more likely to have positive balances and higher median balances at age 50, as follows:

  • 75.7 percent of war babies had positive balances, compared to 74.3 percent of early boomers and 68.9 percent of mid-boomers.
  • When balances were positive, war babies had a median balance at age 50 of $157,871, compared to median balances of $129,512 for early boomers and $108,099 for mid-boomers.

These median balances were adjusted to the value of the dollar in 2014. Most boomers had reached age 50 before the Great Recession, so the financial crisis can't by itself explain their lower levels of accumulated balances.

The Sightlines report also shows that boomers in their mid- to late-50s were hit relatively hard by the housing market crash, with greater loss in home equity, compared to older generations.

Boomers are more debt-burdened

Boomers are carrying more debt of all kinds -- mortgage debt, student debt and credit card debt -- compared to older generations. For example, the proportion of homeowners age 65 and older who haven't paid off their mortgage rose to 35 percent in 2012, up from 23.9 percent in 1998. The median outstanding balance almost doubled, from $44,000 to $82,000.

Boomers also have higher relative debt burdens compared to their wealth and income, and a higher proportion of boomer households have dangerous debt levels. For example, 15 percent of mid-boomers had debt exceeding 50 percent of their wealth, 11 percent had debt exceeding 80 percent and 8 percent had debt exceeding 100 percent.

Action steps

Boomers will need to learn how to move forward with their current circumstances. They can't go back in time and save more for retirement or accumulate less debt. And it'll be very difficult for them to save enough in their remaining work years to make up for retirement savings shortfalls.

The inevitable conclusion is that boomers should take steps now to pay down debt and work into their late 60s or early 70s, and be prepared to reduce their standard of living in retirement. They'll also need to make smart choices regarding how they deploy the resources they have, such as Social Security, savings and home equity.

Many boomers will be able to make these adjustments and still have a satisfactory retirement. However, many people won't be able to make these adjustments, due to such reasons as health shocks, employment shocks or poor decisions. These people may experience a personal retirement crisis, and the burden will largely fall on their families to help them out.

The truth is, we've all got a job to do to help ourselves, our families and our communities deal with these retirement challenges.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.