Yahoo Finance Retirement savings: 'Late boomers' are on the brink
Baby boomers born from 1960 to 1965 are in big trouble when it comes to retirement savings.
The so-called late boomers, nearing retirement, have less wealth than earlier boomer cohorts, according to a new brief published by the Center for Retirement Research at Boston College.
Late boomers have low levels of wealth regardless of how it's defined — total wealth, retirement wealth, and 401(k)/IRA wealth. The average amount in a direct contribution plan, such as a 401(k), 403(b) or IRA, for this cadre of boomers was $32,700 compared to $52,300 for mid boomers – those born between 1954 to 1959. Total retirement wealth for late boomers was $299,703 vs. $350,449 for those just a few years older, according to the findings.
This difference "is unprecedented," Anqi Chen, one of the brief’s co-authors and a senior research economist at the Center for Retirement Research, told Yahoo Finance.
The key reason they've fallen behind? "The Great Recession (Dec. 2007-June 2009) hit late boomers during their peak earning years between the ages of 42 and 49," Chen said. "This was meant to be an age when late boomers earned the most and saved more for retirement. But because...many lost their jobs, or had to accept lower-paying jobs, (they) were less likely to participate in a 401(k). So they could not accumulate enough, setting many of them back."
"They have never recovered," she added.
Other factors: a rising share of Black and Hispanic households who earn less than their white counterparts and a declining share of households that are married and have college degrees.
In reality, these late boomers were expected to have some extra lifting to do. A shift from traditional pension plans to direct contribution plans, like 401(k) plans, has hurt. For this subset of boomers, the responsibility to save at work for their own retirement fell squarely onto their shoulders.
And, in time, the impact of the change in the Social Security full retirement age was anticipated to lead to a dip in retirement wealth to some extent. The 1983 overhaul of Social Security gradually raised the age from 65 to 67, which it reached in 2022 for those born in 1960 or later — effectively cutting benefits by 13 percent.
But the enduring backlash from the Great Recession was a surprise.
Better late than never?
There are still ways late boomers can boost savings.
One thing: make retirement savings automatic from every paycheck and set the amount by a percentage of income, not a dollar amount, Lisa A.K. Kirchenbauer, the founder of Omega Wealth Management in Arlington, Va., told Yahoo Finance. "That will help the dollar amount grow as people get salary increases."
Also being "strategic about bonuses – spend some, save some – is a good way for late boomers to feel like they are having their cake and eating it too," she added.
Consulting with a certified financial planner, or using an online calculator will "help create some urgency around what you should actually be saving, even if it has to be an inspirational goal for now," Kirchenbauer said.
Retirement calculators are widely available online and they are great tools to help people get a sense of whether they are on track. Check out AARP, Bogleheads, Fidelity, Schwab, or Vanguard to start.
Read more: Top savings tools — 4 alternatives to savings accounts
You might also plan on working to make ends meet in retirement. More than a third (36%) of those surveyed by the nonprofit Transamerica Center for Retirement Studies said as much.
"In theory, envisioning working longer and retiring later sounds like an ideal solution to not having enough retirement savings," Catherine Collinson, CEO and president of Transamerica Institute and TCRS, said. "However, it can be very difficult to achieve in practice, especially if you're not...keeping your job skills up to date."
In other words: Start planning for that possibility now by taking classes to learn new skills and keep existing ones honed.
Also don’t neglect the over age 50 catch-up for your retirement fund contributions, Eric Park, a certified financial planner at LPL Financial in Washington, Mo., advised.
Retirement contributions for 2023
Workers who have a 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan can contribute up to $22,500 this year in their employer-provided retirement plans. Folks 50 and over can save an additional $7,500. In total, workers who are 50 and older can contribute up to $30,000 to tax-deferred retirement plans, this year.
The annual contribution limit for an IRA is $6,500 this year. Individuals 50 and over can save an additional $1,000 to IRAs on top of that.
Although the funds are taxed when withdrawn, the compounding of the tax-deferred rate of return can juice up balances above that set aside in taxable accounts with identical investments.
"Details matter a lot in the final landing pass to retirement," Park said. "This is the wrong time to make a mistake, getting professional, objective advice is critical, but be careful who you get advice from, there are no do-overs or mulligans when you’re this close."
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.
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