How to avoid running out of money during your retirement

By | March 12, 2024

A baby boomer, from the youngest generation of her generation

Younger baby boomers lag significantly behind older baby boomers in retirement savings, averaging more than $50,000, according to a new study from Boston College’s Center for Retirement Research. The study attributes the slowdown in savings to the 18-month Great Recession and, to a lesser extent, the changing demographics of younger baby boomers.

Consider working with a financial advisor to maximize your take-home retirement.

Varied retirement savings of baby boomers

The study focuses on the retirement savings of those born between 1946 and 1964. It turns out that the youngest cohort of this generation, those born between about 1958 and 1964, has a combined retirement wealth of an average of $299,700 – including pensions, Social Security benefits and personal savings of an average $299,700. . In contrast, older baby boomers have an average of $350,000 or more.

The researchers used the Health and Retirement Study to look at actual patterns of wealth accumulation by cohort and the Survey of Consumer Finances to gather insights about the experiences of older boomers during their working lives.

Why younger boomers have less retirement savings

The study attributes the relatively low levels of retirement savings among late baby boomers to two factors: the Great Recession, which began in late 2007, and the changing demographics of younger baby boomers.

Before the end of the Great Recession in June 2009, unemployment rose to 10%, hitting many younger boomers – between the ages of 42 and 49 at the time – during their peak earning years. Even those who managed to keep their jobs faced losses, as many employers cut salaries and stopped matching employer contributions to workplace 401(k) retirement accounts.

The link between work and wealth accumulation has decreased significantly for younger boomers compared to older boomers, reducing their retirement assets by an additional $55,600, the report said.

The decline in prosperity, the study concludes, “is a story of the Great Recession.”

Other factors in young boomers’ lower savings

Older black couple ponders how to increase their retirement savingsOlder black couple ponders how to increase their retirement savings

Older black couple ponders how to increase their retirement savings

The study also attributes some of the difference to demographics, with a higher percentage of Black and Hispanic households comprising the younger baby boomer cohort.

“Black and Hispanic households have less wealth than white households, so as their share of the total population increases, average cohort wealth will decline,” the report said. “Similarly, a decrease in the percentage of households that are married or have a college degree will decrease the average. These changing demographics, together with a decline in labor activity, accounted for 29 percent of the total decline.”

Ways to catch up as you approach retirement

Younger boomers — who have four to nine years until they reach full retirement age — still have one last chance to boost their retirement savings. These practices can help you achieve your goals, as well as connecting with a financial advisor to create a personalized plan.

Save more: The fastest way to replenish your retirement nest egg—and increase your ultimate compounding gain—is to save more in your retirement account. Reviewing your household budget to cut costs or find ways to increase your income can help you boost your retirement investments.

To add an IRA: You can add an individual retirement account (IRA) even if you participate in a 401(k) plan at work, a traditional account or a Roth IRA, where you contribute after-tax dollars but your gains in retirement are not taxed . The tax deduction on traditional IRAs begins to phase out after income reaches $73,000 (single filers) or $116,000 (joint filers). Your Roth IRA contributions are limited or disallowed after income of $138,000 (single filers) or $218,000 (joint filers).

Catch-up contributions: Late boomers are well above the age limit of 50 to start making catch-up contributions to individual retirement accounts and within workplace plans such as 401(k) accounts. Boomers can set aside an additional $1,000 above the $6,500 annual limit for all IRAs, and can add $7,500 after a maximum 401(k) deferral of $22,500.

Social security delay: The amount of your Social Security benefit increases by 8% for each year you delay collecting benefits after you reach your full retirement age (the age of 66 to 67 for most boomers). Couples can also weigh strategies for collecting spousal benefits through Social Security.

Working longer: If you stay employed, you can more easily delay collecting Social Security (above) and you won’t have to dip into savings to pay your living expenses. Working part-time during retirement also reduces your pension withdrawals, allowing you to save more. If you work, your Social Security earnings are not taxed unless you receive benefits before your full retirement age.

Other options: You can use an annuity to generate consistent income during retirement, especially annuities that defer payments until later in retirement. Another option is tapping into the equity in your home through the use of a reverse mortgage, which allows you to continue living in your home while withdrawing some of its cash value. Another option is to use a life insurance retirement plan, which uses permanent life insurance to generate income.

In short

Baby boomers taking their dogs for walksBaby boomers taking their dogs for walks

Baby boomers taking their dogs for walks

Younger boomers, born between about 1958 and 1964, have significantly less wealth than older boomers. The average difference is about $50,000. Two factors are responsible for the differences: an evolving household composition and a weakening for younger boomers of the link between work and wealth accumulation.

Retirement planning tips

  • A financial advisor can help you draw up a retirement plan. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory meeting with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Check out our free retirement calculator to get a quick estimate of how much you’ll need to retire, based on your income, age, when you plan to start taking Social Security and how much you’re saving.

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The post Younger Boomers Have Less: How to Avoid Running Out of Money in Retirement appeared first on SmartAsset’s SmartReads.

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