Baby Boomers are reaching the traditional retirement age of 65 in unprecedented numbers, with 30.4 million Americans doing so between 2024 and 2030 alone. This year, we’ve reached the peak of Peak 65, where an average of 11,400 Americans will turn 65 every day, setting a historic milestone, with 4.18 million people reaching the traditional retirement age in a single year.
According to a recent economic analysis published by the Retirement Income Institute, however, two-thirds of them will be challenged to meet their financial needs in retirement, let alone maintain their current standard of living.
More than half (52.5%) of the Peak Boomers have assets of $250,000 or less. Given the likelihood that they’ll spend 20 or more years in retirement, they will likely exhaust their retirement assets and be forced to rely mainly on Social Security, especially later in retirement when health care costs are likely to increase. Yet, Social Security is designed to replace only about 40% of a person’s annual pre-retirement income, on average. An additional 14.6% of Boomers have assets of $250,000 to $500,000, which means they, too, may strain to meet their needs in retirement.
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The economic analysis is complemented by the findings of a survey conducted earlier this year of 2,516 U.S. consumers ages 45 to 75, including an oversample of those ages 61 to 65. It found that 51% of those Baby Boomers, the youngest Boomers of this generation, have less than $100,000 in total investable household assets, while 45% of them are already fully retired.
Most surprising is that 49% of these Peak Boomers ages 61 to 65 have already started claiming Social Security payments — including 77% who are already retired — well short of age 70, when monthly benefits are maximized. Forty percent who began claiming Social Security payments did so because they needed the income, while 45% did so because of a disability or inability to work.
There is good news for millions of Peak 65ers, though, if they course-correct and make some changes while there’s still time. The 47.5% of Baby Boomers with assets of more than $250,000, including the 14.6% with assets of $250,000 to $500,000, have the potential to achieve a financially secure retirement, although such an outcome is hardly guaranteed. Those who are on the brink of success should consider these seven ideas to make the most of their resources:
1. Budget, budget, budget
Establish, and live within, a sound budget, consisting of both discretionary and non-discretionary living expenses, that accounts for inflation. Anticipate the likelihood of spending more money earlier in retirement and the need for a health care reserve later in retirement. Baby Boomers with relatively limited assets cannot realistically expect to achieve a financially secure retirement without a budget.
2. Understand the different types of incomes
Understand the practical differences between protected income, which is income that’s guaranteed from Social Security, pensions and annuities, and probable income, which comes from stocks, bonds and other assets that can rise and fall based on the markets. Ideally, use your protected income sources to cover your essential monthly expense needs, and your market investments for your wants and everything else.
3. Tap your real estate holdings for income
Examine the income potential of your home and other holdings as potential income streams in the form of rent, sales or drawdowns from the equity. For roughly two-thirds of Peak Boomers, their home is their largest asset, and many have accumulated substantial equity over the years.
4. Delay full-time retirement
If circumstances allow, continue to generate earned income by working at least part time. Not only will the additional income stretch your existing savings, many Baby Boomers derive satisfaction and find purpose by continuing to work.
5. Claim Social Security as late as possible
Those in or approaching retirement should weigh whether to delay claiming Social Security benefits, until at least full retirement age of 67, as the monthly benefit amount is roughly 8% greater for each year you delay claiming past age 62 up to age 70.
6. Consider a bridge annuity
Instead of leaving substantial money on the table by claiming Social Security benefits early, consider using annuities as a short-term “income bridge” for a fixed number of years between full or partial retirement. A bridge annuity that guarantees monthly income can be a cost-effective means of maximizing Social Security benefits.
7. Seek professional guidance
A Nobel prize-winning economist once said that decumulation is one of the nastiest and hardest problems in finance to solve. So don’t go it alone. It is never too late to benefit from the counsel of a financial professional, even if it’s for help creating a basic retirement plan. Depending on your needs, they can provide guidance on issues ranging from income and withdrawal strategies to longevity planning and tax efficiency. In addition to helping to make the most of your assets, a financial planner can also provide peace of mind.
The greatest surge of retirement-age Americans in history is a welcome milestone for millions of Baby Boomers looking forward to retirement. Those who adopt these seven best practices have the best chance to realize the financially secure retirement they have long worked toward.
Cyrus Bamji is recognized as one of the foremost experts and innovators on disrupting and modernizing our concept of retirement. He is currently Chief Strategy & Communications Officer at the Alliance for Lifetime Income, a nonprofit consumer education association in Washington, D.C., where he leads financial education, thought-leadership and consumer outreach strategies to help Americans think and plan holistically for life in retirement.
Jason J. Fichtner, PhD, is a Senior Fellow and Head of the Retirement Income Institute, a scholarly research and thought-leadership program of the Alliance for Lifetime Income (ALI), where he manages the research, strategy and operations of the Institute. He is widely recognized as a leading researcher and expert on Social Security, federal tax and budget policy, and retirement security.