Are Baby Boomers Headed for the Poor House in Retirement?


We keep reading about how the Baby Boomers (those born between 1946 and 1964) haven’t saved enough money. Are they prepared for retirement? The Social Security administration (SSA) uses data from the Current Population Survey (CPS), conducted annually by the U.S. Census Bureau, to support the notion that Americans ill have inadequate “income” in retirement and that they will increasingly rely on Social Security benefits to support the lifestyle of which they have become accustomed.
However, let’s make sure that we understand exactly how the term “income” is being defined. The CPS measures regular, monthly income, including Social Security benefits, pension, annuity, and monthly distributions from an IRA or other tax-deferred retirement plan. It does not include any as-needed withdrawals from a 401(k), 403(b), IRA, Roth IRA or other tax-deferred retirement plans.

Consider the following facts:

Retired Americans: In 2008, the CPS reported $5.6 billion in individual IRA income, while the IRS reported that retirees declared $111 billion in IRA income. That’s $105.4 billion more!

Americans receiving Social Security Benefits: In 2008, CPS reported that households receiving Social Security benefits collected $222 billion in pension or annuity income, but these same Americans reported $457 billion in pension or annuity income to the IRS. That’s a $235 billion difference!

Roth IRA: These benefits are not counted by the CPS or the IRS as they are not taxable income.

So, American retirees may actually have much greater income than the SSA is reporting. But does that mean that Baby Boomers are prepared for retirement? Not necessarily.

The United States Department of Labor reports the following facts about retirement:

  • Fewer than half of Americans have calculated their number, how much they need to save for retirement.
  • In 2012, 30% of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate.
  • The average American may spend 20 – 30 years in retirement.

Historically, Americans have depended on Social Security, along with their defined benefit plan (pension), which provided virtually guaranteed income with some increase, typically with Social Security only, for inflation. However, over the past 20 years, defined benefit pension plans have begun to be phased out with most employers. With the population living longer, defined benefit plans became too expensive for companies to maintain. They have been replaced by 401(k) or other pre-tax plans that depend on contributions, either from the employee or company, and no longer include healthcare for retirees.

So, How Prepared Are You?

Plan. Do you know your number? The amount you need to save for retirement? If you don’t know the answer to that question, its time to figure that out in order to set a realistic plan for retirement. You might be surprised to find out that you can retire earlier than you thought.

Risk Management: Are you managing your risk? Market risk is not the only risk that may come into play. Once you retire, you or a loved one may be exposed to risks that you may not have consider. Many people understand the need for life insurance, which helps protect their family in case of a premature death, but a surprising number do not realize the importance of also planning for illnesses and disabilities during retirement.
According to the CDC, each year 1 out of every 3 adults aged 65 years or older will fall. Falls can cause moderate to severe injuries, such as hip fractures and head traumas, and increase the risk of early death. In addition, the chance of having a disability goes up with age reaching almost 75% for people aged 80 or older. Have you considered how you or your family will handle these costs?

Rebalance: Over time, your allocation to stocks, bonds, real estate, commodities, cash, etc. changes due to market conditions. For example, the U.S. stock market just finished a phenomenal year in 2013, while the bond markets were essentially flat. So, now may be a good time to review your portfolio to see if it needs to be rebalanced in order to keep your overall investment risk aligned with your long-term goals.

More responsibility for managing retirement savings and eventual distribution of those savings now falls on the shoulders of each American. Social Security plays a large part, but is not the only income for many Baby Boomers. The most important thing that anyone could do would be to determine their number to see if they have saved enough and are on target.

We will help you get started on planning now.

At Szarka Financial, we believe that it is very important to plan, to help you determine how much you need to save, how long it may take you to accomplish that goal and how to  repare for unexpected healthcare needs in retirement so as to not deplete your nest egg. Let us help you by sitting down to discuss the many factors involved with preparing for  etirement, so that we can come up with a plan tailored to both you and your family’s needs.


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