Boomer retirement plans: Good, bad and ugly
While baby boomers’ retirement challenges have been well documented, not all the news is bad. The 17th Annual Transamerica Retirement Survey of Workers shows that as a group, boomers are doing some things right, but improvement would certainly be welcome in other areas.
To gain some insight into retirement issues facing Americans, earlier in 2016, Transamerica conducted a 25-minute online survey of 4,161 full-time or part-time employees who worked in for-profit companies with at least 10 workers. Let’s take a look at the good, the bad and the ugly with respect to boomers’ retirement planning.
The good
Boomers have heard and accepted the message that they’ll need to work in their retirement years. Only about one in four (26 percent) plan to immediately stop working when they reach a certain age. Two-thirds plan to or are already working beyond age 65 or don’t plan to retire at all.
“Working longer and fully retiring at a later age is a commonsense solution for mitigating retirement saving shortfalls,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies (TCRS).
Half of the survey respondents say they plan to continue working because they need the income and the health benefits -- and they’re probably right. The median amount of reported retirement savings for boomers is $147,000. Using the 4 percent rule for a quick reality check, this amount of savings will generate a little under $6,000 per year in income to supplement Social Security.
As a group, the vast majority (83 percent) of working boomers are saving in a retirement plan at work. And they’re saving at high rates: The median contribution is 10 percent of their salary. Almost two-thirds (61 percent) report that they’re also saving for retirement outside of work.
More than two-thirds (67 percent) say they’re very involved with monitoring and managing their savings, and 59 percent report that they’re using professionally managed investments, either in target date funds or strategic asset allocation funds, or working with a professional adviser.
The bad
While it’s good news that boomers plan to work longer, the reality is that many may not be able to continue working as long as they want, either due to declining health or lack of job opportunities. For example, according to the 2016 Retirement Confidence Survey, almost half of all current retirees (46 percent) report that they had retired earlier than they had planned, often due to a hardship, such as a health problem or disability.
Since boomers expect to rely on working in their retirement years, you might think they’d be taking proactive steps to remain employed. As a group, however, they have plenty of improving to do. The TCRS survey asked workers about six possible steps to help ensure they could continue working beyond age 65.
Slightly more than half (54 percent) had taken two steps, one-third had taken three steps and a little more than one in 10 (11 percent) had taken four steps. The six steps are:
- Staying healthy so I can continue working
- Performing well at my current job
- Keeping my skills up to date
- Networking and meeting new people
- Scoping out the employment market and opportunities available
- Going back to school and learning new skills
Furthermore, the boomers’ vision of a flexible transition into retirement may prove to be difficult because many employers don’t have business practices in place to accommodate this transition. Less than half (47 percent) of all boomers consider their employers to be “aging-friendly.” More specifically, less than one-third (29 percent) report that their employer has flexible transition arrangements.
Even though many boomers say they monitor and manage their savings, almost half (42 percent) report that they guess at their retirement savings needs -- and many people guess too low.
The median amount of savings that boomers reported they’d need for their retirement was $500,000. Again, using the 4 percent rule as a reality check, this amount will generate an annual income of about $20,000 per year in addition to Social Security, not nearly enough to cover many boomers’ expenses.
It would help if employers offered financial counseling about retirement, but only 12 percent of working boomers report that their employer offers this benefit.
Only 19 percent say they “know a great deal about Social Security,” even though more than one-third (34 percent) report that they expect Social Security to be their primary source of retirement income. Given the modest amount of reported retirement savings, it’s likely that even more boomers will be relying on Social Security as their primary income source, so it’s a good idea to learn as much as you can about Social Security.
The ugly
Only one-fourth (25 percent) of boomers report having a backup plan in case they’re unable to continue working until their planned retirement. In addition, more than one in four (26 percent) report having less than $5,000 to cover the cost of a major financial setback, such as unemployment, medical bills, car repairs or home repairs.
As a result, more than one in four (28 percent) have taken a loan, early distribution or a hardship withdrawal from their retirement savings or IRA.
In summary, boomers will need to do a better job of taking steps to make sure they can work as long as they plan, and they should spend more time learning about Social Security and their retirement finances. If you want to know more, the TCRS survey has plenty of additional good and bad news.
“Baby boomers are the generation that has rewritten societal rules at every stage of their lives,” said Collinson. And given their circumstances, it’s likely they’ll need to keep busy with this rewriting for the rest of their lives.
