The baby boomers who are at the youngest age are on the verge of entering retirement, and it’s concerning that a majority of them are not adequately prepared to handle this next phase of their lives.
According to a recent report from the Alliance for Lifetime Income’s Retirement Income Institute, this year will witness the beginning of a significant milestone for the boomer generation. Over 30 million boomers, born between 1959 and 1964, will start turning 65, signifying the “largest and final cohort” of this generation entering retirement.
Many individuals in this demographic, referred to as “peak boomers,” are encountering substantial economic challenges, according to the report. This phenomenon has been labeled the “boomer retirement bomb” by some experts, and it could potentially have a significant financial impact on the rest of the workforce.
According to a report analyzing data from the Federal Reserve and the University of Michigan Health and Retirement Study, it has been found that 52.5% of peak boomers have $250,000 or less in assets. This means that they are likely to exhaust their savings and depend primarily on income from Social Security during their retirement. Additionally, the report highlights that another 14.6% of this cohort have $500,000 or less in assets, indicating that “nearly two-thirds will struggle to meet their needs in retirement.”
According to Robert Shapiro, the former Under Secretary of Commerce for Economic Affairs and author of the report, the United States is facing an unprecedented wave of people reaching retirement age. A significant majority of these individuals will struggle to meet their financial needs and maintain their current standard of living during their retirement years. Unlike older Baby Boomers who have the benefit of secure pensions or substantial savings, many of these retirees lack the protected income necessary to ensure a comfortable retirement.
The retirement wave of peak boomers may have a significant impact on the US economy as a whole. According to the report, it is estimated that employers will need to find replacements for up to 14.8 million peak boomers, particularly in industries such as manufacturing, healthcare, and education. This could potentially lead to a decrease in economic productivity.
According to the report, consumer spending is expected to be affected by the retirement of the baby boomer generation. The data from the Consumer Expenditure Survey reveals that by 2032, peak boomers are projected to spend $204 billion less compared to 2022. The transportation sector is anticipated to experience the largest decline in spending.
The report emphasizes that although older employees are expected to retire in large numbers, younger workers will step in to fill those positions. Furthermore, productivity is projected to increase as technology continues to advance.
The crisis is partially due to changes in how Americans save for retirement
As peak boomers joined the workforce, retirement plans underwent a shift from traditional pension plans, which provide a guaranteed income and are employer-funded, to contribution plans like 401(k)s, where workers are responsible for contributing to their own retirement savings.
Defined benefit pensions, despite facing potential underfunding, exhibit the least disparities along racial, gender, and ethnicity lines among the various retirement-savings plans analyzed in the report. However, only 24% of peak boomers currently possess such plans, highlighting the limited access to these pension options.
Many Americans who are at retirement age are currently living on low incomes. According to the Census Bureau’s Current Population Survey, slightly over half of Americans over 65 have annual incomes of $30,000 or less. The majority of this group, in fact, have incomes ranging from $10,000 to $19,000. Moreover, based on Business Insider’s analysis of CPS ASEC data, it is estimated that 79.2% of retirees receive some form of Social Security income.
Retirement-aged Americans, including many in the peak boomer category, have expressed concern about the need to work until their last days or face financial instability. As reported by Business Insider, they are considering the possibility of continuing to work until they pass away or become physically incapable of doing so in order to maintain their financial stability.
Pam, who is almost 58, expressed her concern about the lack of dignity in old age for those who are not financially well-off. According to her, only the very wealthy will be able to maintain their dignity in their later years. She further added that the rest of the population will be left hoping that they can pass away before losing their jobs, as nobody wants to face the prospect of dying on the streets.
