Baby boomers are living and working longer. Income has become harder to find, and health care is a bigger financial concern than ever before. Here’s how to keep your retirement dreams alive.
Baby boomers, the generation born between 1946 and 1964, began to officially hit retirement age in 2011, and they’re finding the social and market conditions of that retirement to be very different from what they came of age expecting. While each person’s retirement plans and priorities are unique, for boomers, the landscape into which they’re retiring—one of longer lifespans, higher health care costs, unexpected familial pressures and a changed investing environment—is creating something entirely new. Here’s some of what that might look like.
How a Landscape Changes
The change begins with much longer life expectancies, “which is the real game changer when it comes to retirement,” says George Linardos, a Portfolio Manager with Regions Asset Management. When the first baby boomers were born in 1946, a man of 65 could expect to live to age 78, just 13 more years. But a man born in 1946 who is still alive now is already 72, and his life expectancy has extended to 86. That means baby boomers who want to retire at 65, as many of their parents did, may well need the accumulated wealth to pay for a 21-yearlong retirement.
In addition to longer life spans, people entering retirement age now are doing so with different kinds of retirement assets. Unlike their parents who could often rely on defined benefit plans like pensions, very few boomers have access to these plans. “While some percentage of baby boomers may receive pensions, it’s going to be a whole lot less than pre-baby boomers,” explains Alex Gonzalez, a Regional Executive for Regions Private Wealth Management. “So personal wealth accumulation and retirement planning plays a much bigger role.”
Longer life spans often bring with them increased health-care costs. And while Medicare covers some expenses, it doesn’t cover many others, such as long-term care. According to the Employee Benefit Research Institute (EBRI), more than 40% of retirees report that their health-care expenses in retirement are higher than they expected, and 25% say that long-term care costs were also higher than they expected. According to a 2017 estimate, a 65-year-old man would need $131,000 in savings and a 65-year-old woman would need $147,000 to have a 90% chance of having enough savings to cover just their premiums and median prescription drug expenses in retirement.
At the same time, the investing environment has changed, especially for would-be retirees. “Many years ago, we had much higher expectations for market returns—high single digits to low double digits,” Gonzalez says. “Today we have a much more conservative perspective—probably mid-single digit returns.” To make matters worse, persistent low interest rates have made it harder to rely on safe, high levels of yield from traditional fixed-income investments. (See “Investing for the New Retirement” for strategies to help you thrive in this environment.)
This is the retirement environment baby boomers face. But here are a few strategies that the newest wave of retirees is employing to take on these challenges.
A More Active, Engaged Approach
Boomers have realized that, unlike the generation before them, no one is going to look out for them in retirement, and they’ve adapted accordingly. “This generation has really experienced a shift from employer-based planning to an emphasis on personal planning and responsibility,” Gonzalez says. As a result, they’re actively engaged in every facet of retirement planning, making provisions for personal long-term care and care for their families through careful investing options, careful drawdown strategies and other tactics. In many cases, they’ve been collaborating with a financial advisor for years before they cash their final paycheck.
One way many boomers plan to make the most of a longer life is to make it a fuller life—with more work and more engagement. A full 66% of boomers plan to work past 65, or not retire at all. “I’ve seen clients with second, third, and even fourth careers,” says Linardos. “To call it quits at 62 or 65 is hard for most boomers.” The benefits of working longer go well beyond the financial ones. “It’s good for retirees from a mental and cognitive perspective and from an emotional and social perspective,” says Matt Rutledge, Professor of Economics and Research Fellow at the Center for Retirement Research at Boston College. That’s not to slight the financial benefits, which can be profound. For starters, it may help you to delay claiming social security benefits, which increase every year you delay until age 70. And if you contribute to a workplace retirement plan, it can also give you a chance to make sizable “catch-up” contributions.
But keep in mind that working longer may not always be an option. “You could develop health issues that prevent you from working, or encounter employers reluctant to hire older workers,” Rutledge says. According to the EBRI, 68% of current workers expect working for pay to be a major source of income in retirement, but only 26% of current retirees actually receive income from work. Working longer is a great idea, but you do need a backup plan, says Rutledge.
Riding off into a New Sunset
For baby boomers, retirement has the potential to be tremendously fulfilling.
“Most boomers will be able to continue to work if they want to, or to return to work if they need to,” Linardos says. “They’ll likely be healthy enough to spend time taking care of their grandchildren, if that’s something they want to do. They’ll have the opportunity to do the fun stuff.”
It’s just a question of approaching retirement much like the boomers have approached everything else—by rethinking, reworking and reimagining it. Their retirements won’t be like those of their parents, but with some extra thought, care and planning, it can be something exciting and new.
