As ‘Late Boomers’ Fall Behind in Retirement Savings, Experts Offer Tips to Bounce Back
Story by Liam Gibson • 9/1/2023
Among the most prevalent stereotypes of baby boomers is that they are a fortunate generation.
Having grown up in an era of unprecedented economic expansion, enjoying a record-breaking stock market bull run in mid-life, their lucky historical trajectory has become the envy of younger generations.
Yet new research shows not all boomers enjoyed such a boom. For some, at least, their economic well-being has been defined by a bust.
According to a newly-published study by Boston College’s Center for the Center for Retirement Research, late Boomers have less retirement wealth than earlier cohorts, including surprisingly low 401(k) assets.
The study reveals that the combined Social Security, defined benefit, and defined contributions for late boomers (households aged 51-56) lag behind the mid-boomers, early boomers, and war babies before them. While average retirement wealth for other boomer groups in 2020 well exceeded $300,000, late boomers fell short of the mark.
The researchers claimed that the timing of the 2008 global financial crisis, as well as changing demographic trends, are the two largest factors accounting for the gap between this group and other baby boomers. They also cite the “weakening link between work and wealth” shown in the data.
Yet how do financial advisors see the phenomenon, and what can late boomers do to catch up in time to have a comfortable retirement?
Financial Crisis Stings Boomer Savings
The data indicates the crisis of 2008 caused much grief for late boomers, and financial advisors share that view.
“The Great Recession hurt boomers greatly,” says Angela Dorsey, CFP, MBA, and Founder of Dorsey Wealth Management, a boutique consultancy that prepares women for retirement.
“They were in their 40s, and many of them lost jobs,” she adds. “Unfortunately, there is still ageism in the workplace, so it was not as easy for them to find a new one that paid as much as they previously earned.”
Charts from the study reveal that employment of late boomers dropped after the crisis, while employment levels for early and mid-boomers remained relatively stable. More importantly, the percentage of late boomers working did not recover in the decade following.
Dorsey believes this sensitive midway point in life made late boomers particularly vulnerable and explains why many of them panicked during the market meltdown.
“I heard many stories of people moving to cash during the Great Recession, which is exactly the wrong thing to do when the market is down,” she said. “This hurts the long-term performance of a portfolio.”
The findings are all the more surprising when, as the study notes, late boomers were the first generational group of American workers that could have spent their whole career covered by a 401(k) plan. In theory, this should have secured their nest eggs. The reality was quite different.
“The introduction of 401(k) plans was meant to empower individuals to take control of their retirement savings,” says Doug Greenberg, President of Pacific Northwest Advisory. “However, without adequate financial literacy, many didn’t leverage these plans effectively. The absence of automatic enrollment in many cases, poor investment choices, or early withdrawals can erode the intended benefits of 401(k)s.”
How Boomers Can Get Back on Track
Even though they may be relatively behind, late boomers can still leverage some reliable catch-up strategies.
This starts by maximizing contributions to their retirement accounts and taking advantage of higher contribution limits once they pass age 50. Cutting back on unnecessary expenses and redirecting extra money into investments will also help.
Delaying retirement and drawing up a long-term plan, perhaps with the hired guidance of an experienced financial planner, can also go a long way to making their vision a reality.
“Save more, work longer, and/or cut expenses,” says Mike Hunsberger, Owner of Next Mission Financial Planning, an advisory that specializes in serving veterans’ financial planning needs. “These aren’t exciting things, but that’s what they’ll need to do to close the gap.”
It may seem like a steep climb, but late boomers aren’t alone in feeling underprepared.
A growing majority of Americans (66%) fret that if they don’t supercharge their savings soon, they will run out of time to afford a comfortable retirement. Those are the findings from Allianz Life Insurance’s latest Quarterly Market Perceptions Study. Retirement jitters are spreading fast – just last year, 61% told Allianz they thought they were behind.
Clearly, more Americans can take advantage of the time they have left and take additional steps to grow their nest egg.
“Explore other income sources: consider part-time work, annuities, or real estate income,” says Greenberg. “Also, adjust your lifestyle: Consider downsizing or relocating to an area with a lower cost of living.”
Factors Beyond an Individual’s Control Can Vary Considerably
While these efforts can make a difference, there is only so much individuals can do. Sometimes, timing and a generation’s place in the great cycle of economic life can play a meaningful role in the financial fate of demographic cohorts.
“Much of the outcome for future financial wellness just depends on when you were lucky (or unlucky) enough to live through,” says Hunsberger. “If your mid-to-peak earning years are during a great bull market, you’re likely to do well. If, on the other hand, you’ve saved and done the right things but get hit with a long bear market within five years of retirement, you’re likely to have a more difficult time.”
Late boomers do not have an easy task ahead of them in getting ready for their retirement. However, by speaking to a financial advisor and taking proactive steps to save more, there is still time for them to turn their portfolios around and close the gap with their older boomer peers.
For younger generations, the case of late boomers proves the importance of sticking the course with retirement contributions and raising one’s competitiveness to ensure job security.
If the country faces another economic meltdown like 2008, these lessons of yesteryear will prove poignant for all. Investing for the long term is a marathon, and regardless of the speed at which you move forward, it generally pays off to stick in the race and keep going.
About the Author
Liam Gibson is a Taiwan-based freelance journalist who covers tech, geopolitics, and finance. He has written for Al Jazeera, Nikkei Asia Review, South China Morning Post, Straits Times, National Interest, and has appeared in Fortune Magazine, and several other international media outlets.