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Retirement Planning > Retirement Investing

A Tale of Woe: Boomers Trying to Build a Retirement Nest Egg

By Warren S. Hersch

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If you’re in the mood for a good read about the financial problems of aging baby boomers, look no further than a new report from the Bankers Life Center for Secure Retirement.

The study, “Paying for the New Retirement: Responsibilities and Challenges for Middle-Income Boomers,” portrays a worrisome picture: Many individuals in this demographic are woefully unprepared for the nest eggs they’ll need to carry them through their golden years.

Who are these folks?

The online survey polled 1,001 individuals in middle-class households with incomes ranging between $25,000 and $100,000 and holding $1 million or less in investable assets. Boomers among them (ages 52 to 70) accounted for the overwhelming majority (90%) of the total. Most (60%) also were pre-retirees.

What did the survey find? In line with previous studies of boomers, most are (not surprisingly) ill-prepared for retirement. They’re also clueless as to how much they’ll need to save.

Seven in 10 (69%) of the boomers surveyed said they “do not have or do not know” whether they’ll have the funds to make ends meet in retirement to age 85 (the average life expectancy of a retiring 65-year-old boomer). The figure rises to an eye-popping 83% of respondents when asked if they can comfortably finance retirement needs to age 95.

“The survey is consistent with our findings in prior years, says Bankers Life President Scott Goldberg. “Many of them are not putting a plan in place to make them more financially secure. And most are not working with a financial advisor.”

The lack of retirement preparedness reflects a more troubling issue: the fact that large numbers of working-age boomers are struggling financially — and often putting their nest egg on the back-burner to meet expenses today.

Consider this: Six in 10 of the pre-retirees polled by Bankers Life are spending “as much or more” than they earn in income. And 4 in 10 have had to revise budget priorities to compensate for an inadequate nest egg.

The financial strain that middle-market boomers are experiencing is mirrored in their debt obligations: 81% have some. Plastic is the most common type: More than half (53%) of survey respondents (retired or not) hold credit card debt.

Close behind is mortgage debt (44% of all respondents; 39% among retirees). Nearly a quarter of those polled (23%) say they’ll be paying off principal and interest on a home for another 20 years (i.e., well into retirement).

Baby boomers and retirement savings shortfall

The survey found that 8 out of 10 baby boomers are not adequately prepared for the financial demands of retirement. (Photo: iStock) 

Many are shackled by other debts after receiving the proverbial gold watch. The survey notes that middle-market boomers also are paying down:

    • auto debt (33%)

    • outstanding medical expenses (17%)

    • student loans (9%) and;

    • personal debt to another family member (7%).

“Many of these boomers are in a tight squeeze,” says Goldberg. “They’re spending a portion of income servicing debts. And as they enter retirement, they’re forced to reduce expenses, putting them in a less secure position than they ever imagined.”

The mountain of debt is, in no small measure, keeping boomers from directing savings dollars into employer-sponsored retirement accounts. Significant numbers are not taking advantage of 401(k)s, 403(b) and other employer-sponsored defined contribution plans. Or they’re failing to stash away enough to make a difference.

To be sure, the Bankers Life survey notes that 6 in 10 (61%) middle-income boomers do contribute to a retirement or savings account, but they’ve done little or no planning. The vast majority (91%) of respondents don’t have a written retirement plan.

Additionally, three-quarters (75%) of middle-income boomers have not developed a monthly retirement income number goal. A still larger proportion (79%) doesn’t know the amount of pre-retirement income they’d feel comfortable living on when they leave the workforce.

Related: Americans’ views on financial security vary by generation

The report also finds that:

    • Nearly one-third (32%) of middle-income boomers who have taken at least one retirement planning step did not start planning until after age 50. Six in 10 (58%) started planning after age 40.

    • Boomers who started retirement planning before age 30 are more likely to have higher levels of investable assets than those who started after age 50.

    • More than 1 in 10 (13%) of boomers who started retirement planning before age 30 reported investable assets between $500,000 and $1 million. This compares to just one in 20 (6%) of those who started planning after age 50.

    • Less than 4 in 10 (37%) of middle-income boomers who started retirement planning before age 30 reported investable assets less than $100,000. This compares to nearly two-thirds (63%) of those who started planning after age 50.

“There’s a mindset among boomers that they need to provide adequately for their kids while pushing off retirement savings until the last 10 to 15 years of their working lives,” said Goldberg. “But that’s not how compound interest works.

“By putting money aside earlier you can make those savings better work for you,” he adds. “If you push off savings until later in life, then you lose the full power of compounding. You can’t just switch time frames on savings and expect to get the same result.”

Survey respondents who work with a financial advisor, Goldberg continues, are better prepared to fund retirement needs and experience “less financial anxiety.” The components of a retirement plan — developing a budget to cover living expenses, identifying lifestyle goals, pegging savings to an amount needed to fulfill those objectives — will induce boomers to be more disciplined with their finances and, thus, to reduce expenses.

By making budget cuts earlier in their lives, says Goldberg, boomers can reduce interest-servicing payments, increase savings, enjoy the benefits of compounding interest and be better positioned for retirement.

The value of protection products

They’ll also be better able to set aside dollars for all-important protection products: life, disability income, long-term critical illness and other solutions that can help guard against financial risks that can whittle down retirement savings.

“In addition to reducing spending, many boomers need to do more to protect themselves against financial risks connected with a loss of a primary wage-earner or long-term care.

“That’s where, for example, life and long-term care insurance have a role to play,” says Goldberg. “These products may not be available to them later in life because of the need to qualify from a medical underwriting standpoint.”

Such protection products, he adds, are more efficient methods for funding retirement, chronic care and other financial needs than alternative options. Examples: home equity loans and reverse mortgages, which Goldberg says too many middle-income boomers rely on.

“You can’t count on the value of the home to meet future retirement expenses if you’re already tapping that asset now,” said Goldberg. “You can’t expect your home to do double- or triple-duty.

“If you’re tapping your equity now to help make ends meet, and have other ambitions, such as leaving assets to children or covering long-term care expenses, then you need different solutions.”

See the slides beginning on the next page for additional higlights from the Bankers Life survey.

Six in 10 (60%) non-retired, middle-income boomers report they are spending as much or more than their household income, possbily making it difficult to build their retirement savings.

Retired middle-income boomers also report financial challenges. Four in 10 (38%) have already had to make adjustments to compensate for a financial shortfall in retirement.  

Eight in 10 (80%) of retired middle-income boomers rely on Social Security or an employer pension to be their primary source of retirement income, while just one in 10 (12%) rely on personal investments, savings or employment as their primary source of retirement income. 

Most middle-income boomers say they are aware of the most common types of retirement accounts. Three-quarters (74%) of middle-income boomers say they are confident in their understanding of 401(k) accounts with about two-thirds who say they are confident in IRAs (68%) and pensions (65%). But only about half are confident in their understanding of annuities (51%) and Roth IRAs (48%). 

Despite their stated familiarity with common types of retirement accounts, middle-income boomers are not yet doing enough to plan for their own retirement. Only six in 10 (61%) middle-income boomers — including those who have already retired — have done any active retirement planning beyond contributions to a retirement or savings account. 

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