Boomer Expectations for Retirement 2016

 The following is from the Sixth Annual Update on the Retirement Preparedness of the Boomer Generation A report by the Insured Retirement Institute.

The Institute is the leading association for the retirement income industry. IRI proudly leads a national consumer coalition of more than 30 organizations, and is the only association that represents the entire supply chain of insured retirement strategies

OVERVIEW

There are about 76 million Baby Boomers in the United States, more than 40 million of whom are already age 65 or older. As a generation, they have shaped and altered every life stage they’ve moved through, and their sunset years promise to be no exception. They will retire at a rate of 10,000 per day through at least 2030, when almost 73 million Americans, comprising more than 20 percent of the U.S. population, will be age 65 or older.

Approximately 35 million Boomers lack any retirement savings today, a statistic that appears to only be getting worse. The grim legacy for many Boomers, after long working lives spent caring for families, putting children through college, and perhaps caring for their own parents, will be to struggle financially in retirement as they live long lives, exhaust their limited financial resources, and find that their only income in their later years is a Social Security benefit that may be largely consumed by expenses for health care.

Millions of Boomers who lack sufficient savings to live comfortably in retirement need strategies. Those with little or no savings will need to work longer or transition to part-time employment –if they can and if it’s available. They also will need to lower their expectations, and downsize significantly or they risk exhausting what financial resources they do have. The next 20 years may bear witness to some interesting and creative solutions for Boomers.

For those with moderate savings, these Boomers will need advice and guidance to ensure their limited financial resources are not exhausted during what may be a 25-year retirement, or even longer. And even those who have adequate retirement savings will need guidance as they transition to the de-cumulation stage to ensure their savings can appropriately help them reach their retirement goals, which may include legacy considerations.

Key findings: 

·       The percentage of Baby Boomers who are satisfied with how their lives are going from an economic perspective has fallen to 43 percent, the lowest level since 2011.

·       21 percent of Boomers plan to retire prior to age 65, and 59 percent at age 65 or older. This includes 26 percent who plan to retire at age 70 or later.

·       Boomers are less confident than they were five years ago about almost every aspect of retirement:

·       Only 24 percent of Boomers are confident they will have enough savings to last throughout retirement, versus 36 percent in 2012.

·       22 percent believe they are doing a good job preparing financially for retirement, versus 41 percent in 2012.

·       27 percent believe they will have enough money for health care expenses, versus 37 percent in 2012.

·       16 percent believe they will be able to pay for the cost of long-term care, versus 24 percent in 2012.

·       Boomers who lack confidence in their retirement plans, when asked what they would have done differently: 68 percent said they would have saved more and 67 percent said they would have started saving earlier.

·       Only 39 percent of Boomers have tried to figure out how much they need to have saved for retirement. Of those who have, a third did not include health care costs in their calculations.

·       Only 55 percent of Baby Boomers have money saved for retirement, down from 58 percent last year and from more than three in four in prior years.

·       On average, Boomers’ estimate health care costs will consume 23 percent of their income in retirement, compared to the 33 percent of income those aged 60 or older currently spend on health care.

·       A greater number of Boomers have stopped contributing to retirement accounts (30 percent), have found it more difficult to pay their mortgage or rent (30 percent), and have taken premature withdrawals (16 percent) than in recent years.

·       Boomers citing Social Security as a major source of retirement income jumped to 59 percent, versus 42 percent five years ago.

·       Only one in four Boomers expect significant income from an employer-provided pension.

·       Unsurprisingly given low or no retirement savings, an even bigger drop is observed in those citing a defined contribution (DC) plan as a major source of income, to 23 percent from 34 percent in 2014.

·       60 percent of Baby Boomers believe their retirement income will cover basic expenses as well as at least some travel and leisure, yet only 55 percent have retirement savings.

·       One in five Boomers are worried they will not have enough savings for basic expenses.

·       Only 46 percent of Boomers think it is very or somewhat important to leave money to heirs, as compared to 63 percent who believed this was important five years ago, indicating that as Boomers move closer to, and into, retirement they are discovering it may not be realistic to plan to leave money to heirs. Conversely, 67 percent of GenXers believe it is important to leave an inheritance.

·       More than eight in 10 Boomers who work with financial professionals believe they are better prepared for retirement as a result of that relationship.

·       At least nine in 10 Boomers who work with a financial advisor have retirement savings, a measure which has remained above 90 percent since the inception of the study in 2011.

·       Among the 55 percent of Boomers with retirement savings, 58 percent have saved $100,000 or more for retirement. When Boomers work with financial advisors this increases to 78 percent.

·       More than seven in 10 Boomers plan to downsize and subsist on Social Security alone if they run out of money in retirement, and about half would try to return to the workforce.

·       Seven in 10 Boomers with an annuity have saved at least $100,000 for retirement.

·       60 percent of Boomers prefer to meet with a financial professional in person, and 62 percent are very or somewhat unlikely to use a robo-advisor.

·       Divorce is impacting Boomers’ retirement plans: 24 percent of divorced Boomers are, or expect to be, worse off in retirement than if they had not divorced.

·       When thinking about retirement in their 80s and beyond, Boomers are more worried about changes to Social Security (65 percent) than running out of money (55 percent), highlighting the importance many Boomers place on Social Security in the absence of other income sources.

·       74 percent of Boomers have taken at least some action to plan for cognitive impairment, versus only 42 percent last year, though the most common was to have “made a written record of wishes.” More concrete steps, such as documenting assets or appointing a conservator, were undertaken by less than one-third.