The Last of the Baby Boomers Are Turning 65, And Most Will Be Unable to Maintain Their Lifestyles in Retirement
Between now and 2030, nearly 30 million Americans born between 1959 and 1964 will turn 65, the tail end of the Baby Boom generation. As the largest cohort on record to reach retirement age, they are often called the “peak boomers.” In a new study supported by the Alliance for Lifetime Income, my co-author Luke Stuttgen and I found that when the peak boomers stop working, a majority will find that the financial assets they’ve accumulated over their working lives will not be enough to maintain their lifestyles.
Some peak boomers will be fine. But many others could be desperate, especially most of the 45 percent who never attended or never graduated college, or most of the 25 percent of peak boomers who are Black or Hispanic, and many of the 52 percent who are female.
Across all peak boomers, the median value of their retirement assets is about $225,000, including their 401(k), Keogh and IRA accounts, their defined benefit pensions, stocks and bonds held outside retirement accounts, and other savings and outside business interests.
The retirement resources of many groups are much lower. The median assets of female peak boomers are worth only $185,000 compared to $269,000 for male peak boomers. The disparities based on the peak boomers’ race and ethnicity are much larger. The median retirement assets of Black peak boomers total $69,000, with 62 percent holding assets of less than $100,000; and the median for Hispanic peak boomers is $104,000, including 47 percent with assets of less than $100,000. The median financial resources of the white peak boomers are considerably more at nearly $300,000 but still for many to live on for 15 to 20 years, even with Social Security; and 32 percent of white peak boomers have less than $100,000 in retirement savings.
The greatest disparities are those based on the peak boomers’ past education. Thirty-six percent are high school graduates, and their median retirement assets came to $75,000; and 9 percent without high school diplomas have median assets of only $7,000. Another 24 percent of the peak boomers attended college without earning a bachelor’s degree, and their median assets as they face retirement totaled $210,000, with more than one-third of them holding less than $100,000 in assets.
The 32 percent of the peak boomers at least college education have eight to nine times the median assets of the high school graduates: The 20 percent with college degrees have median financial resources worth $591,000, and the 12 percent with graduate degrees hold $661,000 in such assets.
Retired peak boomers will also receive social security benefits, and their initial benefits will average about $25,000 on an annual basis. In this area, the largest disparity is based on gender: Female peak boomers can expect initial benefits averaging $21,400 versus $28,400 for male peak boomers. And given the inadequate retirement assets of most peak boomers, social security benefits are expected to account for more than half of the retirement incomes of more than half of the peak boomers and for 90 percent or more of the retirement incomes of one-third of peak boomers.
However, 24 percent of peak boomers also have defined benefit pensions with guaranteed annual income streams averaging $25,450 for those with those pensions from state and local governments and $17,640 for those with such pensions from private companies. About 8 percent of peak boomers also have personal annuity policies that can provide comparable streams of retirement income. At this late date, however, a large majority of the other 92 percent lack the assets to purchase a substantial policy. At a minimum, Congress can and should expand access to annuities for everyone, for example by requiring the financial institutions that manage people’s 401(k)s, Keoghs, and IRA accounts to offer their clients an annuitization option.
And apart from defined benefit pensions and personal annuities, nearly all retirement assets held by the peak boomers are held in stocks and bonds that rise and fall with the equity and bond markets. Based on how those markets perform, their assets may grow or shrink substantially before and after they retire. We analyzed the impact on the value of peak boomers’ median retirement assets from 2024 to 2030 under two scenarios—a bull market that follows the real market returns of 2017 to 2023 and a bear market with returns that parallel the markets from 1973 to 1979. We also assumed that retired peak boomers will cash in an average of 7.5 percent of those assets each year to help with living expenses.
Our analysis shows how uncertain the future value of those retirement assets may be. Under a bull market from 2024 to 2030, the retiree starting with the median assets could withdraw $126,000 and still have roughly the same assets in 2030 as in 2023. But under the bear market, the annual 7.5 percent withdrawals would yield only $72,000 to defray some living expenses and value of the original assets would fall by half over those years.
The coming retirements of the outsized cohort of peak boomers will also have notable economic effects. Between now and 2030, employers will have to replace up to 10 percent of their current workforces on top of their normal attrition. Many industries including construction, manufacturing, healthcare, and education will have to replace one to two million retiring employees, most of them highly experienced, and at substantial costs. These developments will exert downward pressure on productivity growth and GDP; and as most peak boomers will have to live on less income after they retire, their consumer spending will shrink by an estimated 15 percent.
The challenges the peak boomers will face in retirement are also a cautionary tale for members of Generation X, the Millennials, and Gen Z. To ensure a reasonable lifestyle when they finally retire, most will have to start saving more, now, and educate themselves about annuities.
Link to the report: The Peak 65 Economic Impact Study: A Majority of Peak Boomers Are Not Financially Prepared for Retirement and Their Retirements Will Have Large Effects on the U.S. Economy