Boomers Report No Savings at All

With fewer pensions and more debt, they face retirement challenges their parents didn't

by: Carole Fleck | from: AARP Bulletin | February 3, 2011

En español | The generation that gave rise to Hula-Hoops, Woodstock and Jimi Hendrix is reaching America's traditional retirement age this year woefully unprepared. As the oldest of the boomers turn 65, they face a retirement that is unlikely to go as smoothly as their parents' did.

The lingering pain from the most severe recession since World War II is partly to blame. Many boomers are on the verge of ending their work lives without fully recovering fortunes lost in the housing and stock markets.

That translates to less money to fund their retirement years, which could stretch for three decades given that boomers can expect to live into their 90s.

A poll released Wednesday found that a whopping 25 percent of people ages 46 to 64 say they have no retirement savings — and 26 percent have no personal savings.

The situation is almost as grim for adults 65 and older: 22 percent have no retirement savings and 14 percent have no personal savings, according to the poll of 2,151 adults conducted in November by Harris Interactive.

Similarly, a Pew Research survey in May reported that half of all boomers say their household's financial picture has worsened in the last year. A fifth say they have a lower standard of living than their parents had at their age.

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'Can I still retire?'

"The recession contributed to a general feeling of uncertainty," says Rob Hoxton, a certified financial planner and president of Hoxton Financial in Shepherdstown, W.V. "We have people who've come to us and said, 'Can you fix me and can I still retire?'

"People believe that they deserve to have a retirement and it ought to be somewhat similar to what their parents had," he says. "We constantly have to reconcile their expectations of what they believe they're entitled to with the reality that it's very expensive to retire and have 30 years of life after that, at least.

"There's a lot of dialogue," Hoxton adds, "and we come to a workable solution. But it may not be what they originally envisioned."

Indeed, for America's postwar generation, born between 1946 and 1964, life in retirement will surely bring more financial challenges than their parents faced.

Stagnant wages, heavy debt

To some extent, boomers are more encumbered by debt because their wages remained relatively stagnant for years, says Christian Weller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress, a research group in Washington.

Add to that their penchant to spend beyond their means while saving less than what's considered adequate for retirement, and a questionable outlook emerges.

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Running out of money

When the "silent generation" began retiring more than 20 years ago, they were the last group to be widely covered by traditional pensions. Today just 10 percent of private companies provide employees with guaranteed lifelong income when they retire, according to the Bureau of Labor Statistics.

Consequently, 401(k) plans have become the main source of retirement income for workers of all ages. But because such plans are tied to the market, it's somewhat of a guess how well they'll perform.

If investors haven't saved enough, or their portfolios and housing values decline just as they hit retirement age, they may end up carrying more debt in retirement. Worse, they could run out of money in their later years.

"People are reacting to this by working longer. They're realizing that they can't retire as young as their parents did," says Richard Johnson, a senior fellow at the Washington-based Urban Institute.

"Since the early 1990s, men's labor participation rates have increased. More people are not retiring, or they're retiring later and it's driven by economics."

Health care costs a big worry

Many workers are staying on the job longer just to keep health insurance, especially as companies increasingly do away with retiree coverage to contain costs.

By some projections, boomers will need between $200,000 and $500,000 during retirement to pay for deductibles and expenses not covered by Medicare, including dental care, hearing aids and other treatment.

Social Security benefits won't go as far, either. In 2002, benefits replaced 39 percent of the average retirees salary, and that will decline to 28 percent in 2030, when the youngest boomers reach full retirement age, according to the Center for Retirement Research at Boston College.

"When people retire today, their standard of living is more likely to fall compared with those who retired 30 years ago," says Johnson of the Urban Institute.

"Also, the process of retiring has become more complex," Johnson says. "It used to be people left their jobs and moved into full-time retirement. Now people are phasing in retirement, switching to part-time jobs, moving from full retirement back into the labor force. That's not something you saw nearly as much in 1980s."

Working longer to afford retirement

In 1985, just over 18 percent of people ages 65 to 69 were in the labor force. By 2010, the percentage of workers in that age group nearly doubled to 32 percent, says Sara Rix, a senior strategic policy adviser at AARP.

She predicts that the generation that came of age in the 1960s will embrace advances in technology, stay fit and healthy well into their later years, and won't likely compromise on how they want to live their lives in retirement.

"I don't see boomers scaling back or willing to do without the way their parents' generation did," Rix says. "They're going to continue working so they can ultimately afford the retirement they want."

Carole Fleck is a senior editor at the AARP Bulletin.