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Tough retirement realities for baby boomers

The new work trend: "Unretirement"
The new work trend: "Unretirement" 01:52

The vast majority of older working Americans don't have sufficient savings to retire full-time at age 65 with their pre-retirement standard of living. That's one of the sobering conclusions from the recent Sightlines report issued by the Stanford Center on Longevity (SCL).

As a result, the report noted, workers approaching retirement will either need to work beyond age 65, reduce their standard of living or do some combination of the two. This should cause some soul-searching among older workers, their families and their employers.

Boomer retirement savings fall short

First, let's look at the amounts that baby boomers have saved as they approach their retirement years. According to the SCL report, almost one-third (30 percent) of them have saved nothing toward retirement. For those with positive savings, the median balance was $290,000 for boomers born between 1948 and 1953 and $209,246 for those born between 1954 and 1959. 

A quick reality check: $290,000 in retirement savings generates an annual income of about $11,900, using the 4 percent rule for determining how much to withdraw from that savings pool annually.

Of course, you'd want to add your Social Security benefits to the $11,900 amount to estimate your total retirement income. 

But here's another reality check: The average Social Security income for new retirees in 2017 was about $1,460 a month, or $17,520 annually, according to Social Security Fast Facts. So the total retirement income in this example is about $29,420 a year. For most people, this is much less than the commonly recommended retirement income goal of 70 percent to 80 percent of your pre-retirement pay.

Boomers aren't making up for lost savings

Given that boomers' accumulated retirement savings are falling short of common retirement goals, perhaps they're accelerating their contributions to make up for lost time. Actually, the opposite is happening: Most aren't even putting aside the amounts they should have been saving all along, starting during their earlier working years. To begin with, only 40 percent of workers age 55 to 64 are making contributions to work-based retirement plans.

The SCL report also summarized two analyses that suggest the amounts that workers should be saving, and it compares these targets to the amounts older workers are actually saving:

  • The Boston College Center for Retirement Research (CRR) finds that workers who start saving at age 25 and want to retire at age 65 should save about 10 percent of their pay for every year between those ages. Yet the SCL report shows that only 36 percent of workers age 55 to 64 who save in a retirement plan at work actually contribute 10 percent or more. Both the CRR targets and the amounts reported by SCL include employer-matching contributions. 
  • Workers who start saving at age 35 and retire at age 65 should be saving 15 percent of their pay, according to the CRR. Yet the SCL report shows that only 18 percent of workers who save in a retirement plan at work contribute 15 percent or more.
  • Another report prepared by Aon Hewitt suggests higher savings targets: Workers should be saving 17 percent of their pay between ages 25 and 65. Yet as noted above, not many older workers are contributing at these levels.

These are just some of the numbers behind the conclusion that most workers will need to work longer, cut their standard of living in retirement or combine both measures. It doesn't matter whether you call this is a "retirement crisis" or a "serious retirement planning challenge" -- the reality remains the same.

Here's the gameplan

Clearly, older workers will need to take steps to help them keep working in some manner during retirement, including taking care of their health. They'll need to take a hard look at their living expenses to see which items they can reduce and still live a satisfying life. They'll also need to make smart choices to squeeze the most from their financial resources, such as Social Security, Medicare, retirement savings and home equity.

My latest book, "Retirement Game-Changers: Strategies for a Healthy, Financially Secure, and Fulfilling Long Life," focuses on the critical decisions older workers face as they transition out of the workplace and into retirement.

The longer lives that we're all living create unique challenges for planning our retirement years. Nobody said it would be easy to live for 20 to 30 years in retirement. We'll all just have to roll up our sleeves and take the right steps, with planning and hard work, to address the challenges we're facing.

Disclosure: I was significantly involved with the SCL study and co-authored one of the chapters.

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