A new survey reports the disturbing finding that almost half of Baby Boomers, a demographic of 78 million people, have nothing saved for retirement.
As a result, the Insured Retirement Institute (IRI) understatedly says, retirement anxiety is growing, and many are postponing retirement.
Even worse, many Boomers are underestimating the amount of annual retirement income they may need and hold unrealistic expectations of the impact health and long-term care costs may have on their retirement budgets, and what costs are covered by Medicare.
1. Not enough income
IRI found that too many Baby Boomers have not saved sufficiently for retirement—if they have any savings at all.
Of Baby Boomers with retirement savings, more than half have saved less than $250,000.
The average annual Social Security income a retired couple can expect is about $28,000 per year, while the average couple age 65 to 74 today spends about $55,000.
Only 30 percent of Boomers believe that they will need $55,000 annually or more in retirement income.
2. Underestimating health care costs
Baby Boomers appear to have mismatched expectations for retirement given the low levels of potential income for many.
Also, a significant number of Boomers exhibit uncertainty as to how much of their income that health care costs may absorb.
More than 50 percent of Boomers believe health care costs will consume 20 percent of their income.
However, HealthView Services estimates that a healthy 66-year-old couple will need 48 percent of their lifetime Social Security benefits to address health care expenses.
Nearly half of Boomers believe that Medicare covers long-term care costs but that is not the case.
3. Longevity risk: Will income last throughout retirement?
Eighty percent of Boomers surveyed said that it is very or somewhat important that retirement income sources be guaranteed for life.
However, traditional workplace pensions are a disappearing commodity and too few Boomers are taking advantage of the one available product that can provide protected lifetime income—annuities.
Two-thirds of Boomers who do not have an annuity cite insufficient savings or lack of knowledge as a reason for not owning one.
IRI’s survey shows an undercurrent of rising anxiety among Baby Boomers entering and preparing for retirement.
Too little savings, underestimating health care costs and unrealistic expectations of how much retirement income they will need are all contributing factors.
As Boomers age they have less time to save and fewer options to meet their retirement income needs, which may explain why more Boomers say they are delaying retirement and continue to work (and hopefully build savings).
Baby Boomers are a learning laboratory for retirement planning, IRI concludes. Younger Boomers do not have access to traditional pension plans that delivered lifetime income to workers, and younger generations are even less likely to enjoy the security of a pension.
This is driving a need to expand financial education to encourage younger workers to save, plan and seek assistance to both accumulate retirement savings and to create monthly, lifetime income streams that ensure financial security.