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Retirement Planning > Saving for Retirement

Early and late Boomers, two distinct groups

By Michael K. Stanley

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The 79 million individuals who are lumped together under the Boomer generational title have led fairly different lives, have diverging priorities and therefore hover at varying levels of retirement preparedness.

A recent report by the Insured Retirement Institute documents the differences between early (those aged 61-66) and late (those aged 50-55) boomers, and concludes that there are two distinct subsets within the blanket definition of a Boomer, and need to be looked at separately from a financial planning perspective.

The report, “The Great Divide: Financial Comparison of Early and Late Boomers’ Retirement Preparedness” found one of the most important differences between the two Boomers from a retirement planning perspective was the migration from the defined benefit plan (DB) to the defined contribution (DC) plan, which was facilitated by the Revenue Act of 1978, only a few years before the last of the late Boomers entered the workforce.

Thirty-nine percent of early Boomers reported that they will rely on a DB plan as a major source of income in retirement compared with 34 percent of late Boomers. Meanwhile, 43 percent of late Boomers said that a defined contribution plan will be a major source of income in retirement compared to 36 percent of early Boomers.

The 401(k)-like plans that many late Boomers are relying on present them with a unique challenge when compared with the DB pension-like plans their older siblings are living off of: The 401(K)-like plan will not automatically disperse the money as an annuity payment. This renders late Boomers with a burden of responsibility for a lump-sum of cash that can easily be usurped by other needs.

Late Boomers may want to look into annuities in order to provide them with a guaranteed source of income throughout their years in retirement, the report states.

Annuities and other guaranteed income products are a good fit for late Boomers as the report found that close to one-fifth of late Boomers and one-quarter of early Boomers indentify guaranteed monthly income as the most important trait in a retirement investment product.

The report indicated that DB plans allow for a sense of security in retirement when compared with DC plans. Forty-two percent of early Boomers reported they feel they have enough money for retirement compared to 25 percent of late Boomers.

However, the higher confidence level among early Boomers cannot be solely attributed to DB plans. The report found early Boomers were able to replace 70 to 80 percent of their pre-retirement income (even after the recession) while later Boomers were able to replace 60 percent.

Interestingly enough, more late Boomers reported that they are financially challenged even though many are still working and 48 percent of early Boomers are retired. One reason for this could be that 34 percent of late Boomers are currently supporting an adult child compared to 21 percent of early Boomers.

Adequate savings is a problem for both Boomer cohorts. The report found a need for more Boomers to perform a need-calculation for retirement and although many reported that they have saved for retirement, in most cases they have not saved enough. Almost half of late Boomers and close to one-third of early Boomers reported having less than $100,000 in retirement savings. Performing a need-calculation and working with an advisor can greatly improve retirement preparedness for both groups. In fact, the difference in confidence levels among both groups of Boomers who have worked with an advisor and those who have not is as much as 13 percentage points.

A worrying trend across both Boomer sets is the reliance on Social Security as a major source of income in retirement. Fifty-three percent of early Boomers will rely on it compared to 36 percent of late Boomers.

The report concludes that it could be advantageous for advisors to view early and late boomers as two separate generations when it comes to planning purposes. Late boomers present more of a challenge but one that can be overcome with the proper discipline and planning and, the report states, the use of guaranteed lifetime income products, such as annuities. 

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