Retirement Crisis: It’s As Simple As Not Saving Enough
- Baby boomers approaching retirement are woefully unprepared.
- It only gets worse with Gen X and Millennials.
- Introduction to a multi-part series on retirement strategies.
- Our retirement series depicts strategies for all levels to make the most of their options.
This is the first part in a multi-part series on retirement and how Yield Hunting can get you better prepared for it. The topic of this article is to demonstrate how woefully unprepared the next generation coming up for retirement really is. Future articles will discuss:
- Dream Job for Retirement
- Best Places To Retire To Make That Retirement Income Go Farther
- Roth Conversions
- Sequence of Returns Risk (already released)
- Retirement Withdrawal Strategies
Plus several others down the line… stay tuned!
The Looming Crisis
As baby boomers approach retirement, we are finding out more and more are ill equipped for the path that lays ahead. Study after study, article after article, report after report all say the same thing: this is the first generation that will be unprepared for retirement.
Baby boomers are roughly defined as those born between the years 1946 and 1964. Soldiers returning from WWII settled down and created a population boom that we call the baby boomer generation today.
What changed from their parents’ generation? For one, most who retired before 1990 had a defined benefit plan from their employers. Also, social security was expected to be sufficient for most of their living expenses and healthcare costs. But as price inflation in those two areas has skyrocketed, social security has not kept the pace with them. Lastly, the previous generation retiring at 65 could be expected to live roughly another 20 years. That is just not the case nowadays as retirees are living into the 100s.
As we transition from an economy where you work at one company for your whole life, have a pension, and receive social security and healthcare sufficient to get to 85 years old, to one where you can work at more than a dozen companies, have only a 401(k) (and likely get no employer contribution), and live to 100, many retirees haven’t planned well enough to weather even the basic expenses in retirement.
The numbers are staggering. Some of the stats that we have compiled that are floating around out there include:
- Between 30% and 40% have saved nothing for retirement
- Women are 27% more likely to have zero saved for retirement
- 48% of boomers won’t be able to afford their basic living expenses
- The typical account for a worker nearing retirement is only $42,000
- $6.6 trillion gap between what boomer have saved and what they will need
To put all these stats in perspective, it is said boomers will need somewhere in the neighborhood of $650,000 in their retirement plans to fund their retirement 100%. The average 65-year-old couple has $263,000 stashed away. Some may say they could get by with that amount. That they could make it last. However, compare that figure to the fact that medical costs for that same couple are estimated to be $220,000, and you can see why so many see a crisis looming.
There are ways boomers can get by, and they can expect to make what little they have stretch for the decades they are retired by living abroad, or in low tax states, or by having a ‘working retirement.’ As previously mentioned, we will cover many of these strategies in the coming weeks.
However, it’s also a matter of expectations. Jet-setting around the world in five-star hotels, cruises, and spending lavishly will most certainly have to be cut back. Retiring at 60 or even 65 will be a thing of the past, and downsizing after the kids are gone a necessity.
It Only Gets Worse
If you thought the picture for boomers was bad, the generations following them to retirement are downright horrible.
Millennials picture a social security system that won’t even be solvent by the time they near retirement. And, with healthcare costs rising 6.5% on average a year, they would need to fund their retirement at even greater amounts than the previous generation. According to Money.com, most are worse off than the previous generations (Gen X and the baby boomers). They’re on track for 50% or more to not fund a dollar towards their retirement. If you add in those with a balance of $10,000 or less, the percentage jumps to 72% of millennials with $10,000 or less saved.