We’ve been hearing the dire predictions for years now: Baby Boomers are heading for a looming cliff, usually referred to as a retirement crisis. With the oldest boomers now hitting 75 and the trailing edge within a few years of age 60, this huge cohort is supposedly reaching retirement age en masse at the rate of 10,000 per day.

It’s true that millions of these men and women – the first generation to navigate the world of retirement with the 401(k) – are terribly unprepared for what lies ahead. But is this a retirement crisis or not? It depends on who you ask, and also what these aging boomers expect retirement to look like.

For source material on this topic, we actually went back a year and found this article from the Investopedia website, written by reporter Barbara Friedberg. While the article is from early 2022, the issues it raises are completely relevant today. The basics: Baby Boomers are retiring in large numbers, yet many do not have enough saved for their retirement. The reasons may vary – a lack of planning, the 2008 financial crisis, as well as the chronic low interest rates since. The question becomes, now what?

As always, we asked Rajiv for his thoughts on this topic, which we’ve shared at the end. The bottom line: Rajiv says many Baby Boomers are in fact heading for a retirement crisis, but it might not be for the reason they expect.

Gloomy Picture for Many Retiring Boomers

In her Investopedia analysis, Friedberg writes, “Baby Boomers – the generation born between 1946 and 1964—are heading into retirement in droves. Along with the aging of this iconic cohort comes a lot of data concerning their lack of preparation for their later years.”  The result of all that data is bleak, she suggests: “Insufficient financial resources paint a gloomy picture for many retirees.”

The Investopedia article provides an overview to show how financially prepared – or unprepared – the Baby Boomer generation is for retirement.  Remember, these numbers are from last year, but we suspect the picture has not changed materially since then, and the underlying principles are the same as in 2022.

Insufficient Average Savings Triggers Pessimism

“Baby Boomers have an average of $152,000 saved for retirement,” Friedberg states, referencing the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. “This is not nearly enough to last through retirement. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend, on average, $48,885 a year.”

This shortfall has led most workers to feel pessimistic over their retirement prospects. According to Transamerica, 76 percent of workers overall believe that their generation will have a much harder time achieving financial security in retirement compared with their parents’ generation. For Baby Boomers, that “pessimism index” is 69 percent, but their younger counterparts feel gloomier: 79 percent of Millennials and 81 percent of Gen X respondents predict a tougher and less secure retirement.

Research by the  Insured Retirement Institute (IRI) paints a starker picture for retiring Boomers, says the article. “IRI found that 45 percent [of Boomers] have no retirement savings,” Friedberg writes. “Out of the 55 percent who do, 28 percent have less than $100,000. This suggests that approximately half of the retirees are, or will be, living off of their Social Security benefits.”

Why Baby Boomers Lack Retirement Funds

To answer the question, “How did we get here,” Friedberg hearkens back to recent history. “A key reason Boomers lack funds is the stock market decline during the Great Recession,” she writes. “This event scared many older adults out of the markets, causing them to miss the subsequent rebound. Panic selling, although understandable, decimated many retirement accounts.”

In the aftermath of the ugly recession years, the financial news stayed negative. “The following years of low interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase,” says Friedberg. “These yields, in turn, were invested in capital that earned virtually no interest. With wages plateauing, it was difficult for most workers to ramp up savings in their final earning years.”

More recently, she adds, has been the market tumult of the past few COVID years. “The most recent blow has been the huge losses and gyrations of the stock market due to the panic selling in February and March 2020,” she states. “Even those who resisted likely took heavy hits to their assets.”  (As an update, we should add than 2022 wasn’t much better, with the S&P Index down almost 20 percent.)

Failing to Plan Means Planning to Fail

Any story about Baby Boomers and retirement has to state the obvious: many of this have-it-all generation never seemed to take retirement planning seriously. “Making all this worse is a lack of planning,” says Friedberg. She spoke with financial planner Elyse Foster, who told Investopedia, “This is the first generation to face saving for retirement on their own. I believe, early on, there was a lack of information on the importance of saving early and often. The assumption seemed to be ‘you are on your own.’”

Will those who follow behind learn a lesson from the retiring Boomers? One can hope so. “With luck,” says Friedberg, “Generation X and the Millennials will benefit from seeing the impact of not planning early. But the Boomers have to deal with it now. The switch from pensions like benefit defined plans to contribution defined plans like 401(k)s have exposed baby boomers to the capital market risk and changed the way to deal with retirement savings.”

One of the unexpected effects of the pandemic was the fact that many aging workers were forced into retirement earlier than planned. Yet most Baby Boomers remain unprepared for such an eventuality. Friedberg says only 26 percent say they have “a backup plan for retirement income if forced into retirement sooner than expected, according to the TransAmerica Center for Retirement Studies.”

Is This a Crisis? That Depends on Who You Ask

Calling this a “retirement crisis” could be misleading, the article implies. “Whether or not this can be called a crisis depends on which Boomers are being discussed, including the types of assets they can access,” writes Friedberg. “Boomers who own their own homes in an area with a lower cost of living may be able to live on quite a bit less than a rent-paying retiree in a major metropolitan area,” in spite of meager savings.

Social Security helps, but it can’t be the solution. Today, says the SSA, 90 percent of retirees receive Social Security benefits compared with 69 percent of retirees in 1962. But living on the average benefit is next to impossible. “The average Social Security benefit was $1,555 per month in 2021,” says Friedberg, “substantially less than the average wage, which was approximately $3,990, according to the Bureau of Labor Statistics.” (Note that in 2022 the average Social Security benefit had risen to $1,657, and it was expected to jump to $1,827 this year. Meanwhile the average U.S. wage in 2023 is about $4,450 for full time 40-hour workers.)

Important to Have the Right Mindset

Index fund advisor Mark Hebner told Investopedia that expectations are important in retirement. He suggests retirees short on savings should be “looking to downsize your home, moving to a more affordable state, relying on public transportation, and having a robust budget that itemizes discretionary and non-discretionary items.”

But don’t expect a champagne lifestyle on a beer budget. “The most important thing is that retirees have the right mindset about their lifestyle in retirement. This is why it is important to start making lifestyle adjustments before you retire,” says Hebner. 

The article ends on a vague note. “For those depending on Social Security benefits in their senior years, maintaining a comfortable lifestyle in retirement will likely be difficult,” warns Friedberg. “But whether Baby Boomers are in a retirement crisis depends on how you measure the situation, where they are living, and how their circumstances compare with their predecessors.”

Rajiv’s Warning: Don’t Ignore Uncovered Medical Costs!

Rajiv Nagaich of AgingOptions told us there are many aspects of this article he found helpful. “One thing I agree with,” he said,” is that you don’t have to have a lot of money to enjoy a happy retirement. As the article suggests, you need to be realistic, and adjust your lifestyle to match the reality of your finances. But I know plenty of people living very happily in retirement on a modest income – just as I know others with boatloads of money who are stressed-out and miserable because they can’t make ends meet!”

But the Investopedia article does have a huge gap. “The biggest issue I have with this article is that there’s zero mention of the danger of uncovered medical costs,” says Rajiv. “Unless you’re actively preparing for that day when the rehab nurse is telling your spouse or adult child that you can’t go home from the hospital, that you need extra care, then you’re not ready for retirement.  This is where AgingOptions can help!”

Rajiv’s advice: even if you haven’t planned for uncovered medical expenses, start planning now. “Call us,” he urges. “Attend a seminar. We can show you steps to take now so that you’ll never have to face a retirement crisis in the future. You CAN be ready!”

Breaking News: Rajiv’s New Book is Coming Soon!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, will launch in March 2023.  As a friend of AgingOptions, you have the option to preorder now.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

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Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

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(originally reported at www.investopedia.com)