The Need to Prepare Baby Boomers for Retirement Is Urgent

The Insured Retirement Institute found 42% of Baby Boomers have no retirement savings, and industry sources say longevity and long-term care expenses are often not considered when Baby Boomers plan for retirement.

Baby Boomers are in large measure unprepared for retirement, having failed both to plan adequately and save enough, according to a study released by the Insured Retirement Institute (IRI), in conjunction with National Retirement Planning Week.

According to the study, 42% of Baby Boomers have no retirement savings. Among Boomers who do have retirement savings, 38% have less than $100,000 saved for retirement. Further, only 38% have calculated the amount they will need to retire. However, 79% of boomers who work with financial professionals have at least $100,000 saved for retirement.

During a media call, Tim Seifert, vice president and head of Annuity Sales at Lincoln Financial Group, said clients come in with two questions: “Do I have enough saved, and will it last for my lifetime?” This is a universal problem, he says, whether the client is a factory worker or factory owner, and the challenge Americans will continue to face is how to know if they are prepared to be financially secure in retirement.

The number one rule is to understand longevity—what Seifert calls the 73/47 rule. For a husband and wife age 65 today, there is a 73% chance that one will be alive at age 90 and a 47% chance one will be alive at age 95. “Savings needs to last 30 to 35 years, and only 18% can depend on pensions,” Seifert said. “A good retirement plan will always include a strong income strategy.”

The IRI study found 46% of Baby Boomers expect they will need $45,000 (in current dollars) or more in annual retirement income. Assuming the current average Social Security benefit of $16,848, an individual would need to generate at least $28,152 in additional annual income from a combination of pension benefits and retirement savings. At current rates, a life annuity paying $28,152 in annual guaranteed lifetime income would cost approximately $430,000, far more than most Boomers have saved.

Seven in 10 Boomers say it is very important for retirement income to be guaranteed for life, yet only 14% plan to purchase an annuity with a portion of their 401(k) or IRA, and only 3% have done so. However, 84% of Boomers with financial advisers have had income from an annuity included in their financial plan by their adviser (43%), or their adviser has discussed using annuities for retirement income with them (41%).

Only 25% of boomers believe that they will have enough money in retirement, and only 28% believe they are doing (or did) a good job financially preparing for retirement. While a growing number (25%, up from 20% in 2017) plan to retire earlier than age 65, 29% expect to work past age 70.

Baby Boomers began reaching age 65 in 2011—26 million have so far and another 50 million will turn 65 over the next 10 years, Cathy Weatherford, president and CEO of the IRI, pointed out in the media call. “There is still some time, and with effort, we can help millions become better prepared for retirement.”

Changes to Social Security that may reduce their income (76%) and health care expenses (69%) are the top two concerns of Boomers regarding their later retirement years, according to the IRI study.

Bill Nash, VP, MoneyGuard Distribution, Lincoln Financial Group, said during the media call that it is impossible to have a retirement planning discussion without having a discussion about the effect of long-term care needs in retirement. Only 29% of survey respondents believe they will have enough for health care expenses in retirement, and only 19% believe they will have enough for long-term care expenses. Nash pointed out that the average cost of nursing home care is more than $100,000 a year, and for a home health care nurse, the average is $47,000 a year.

“Family and friends have the best intention to be caregivers, but many do not have financial or emotional resources,” Nash said. “Only 14% of clients are having a conversation with family, mostly due to a lack of education and awareness. People severely underestimate the cost and many feel they won’t need long-term care, and there is a lack of awareness about what Medicare or Medicaid will pay.”

Nash said the conversation can be started by asking, “What is your plan for long-term care,” “How will long-term care affect your family,” “How will the expense affect your family,” “What kind of care do you want,” and “If you were to need care and are unable to make decisions, other than your spouse, who would you want to make those decisions?”

Brandon Buckingham, vice president and national director of Advanced Planning at Prudential Financial, pointed out that more Americans today have to rely on personal savings for retirement income than in the past. “A retirement income plan is more than just taking out money from defined contribution plans as needed; it will likely require a combination of investments, strategies and products. It will involve making informed decisions such as when to take Social Security, understanding health care costs and what Medicare costs and covers, and knowing how to structure decumulation to address inflation risk, longevity risk and market risk.”

Weatherford noted that the theme of this year’s National Retirement Planning Week is “Rethink Retirement.” She said it is important for Americans to have a plan, save as much as they can and seek the help of retirement professionals to make sure they are using all possible resources to prepare for a comfortable retirement.

IRI’s survey report is here.