The oldest baby boomers, many of whom are expecting to retire soon, will likely not have enough money to carry them through their twilight years, according to a study released today by the Employee Benefit Research Institute.
Almost half, or 47.2%, of early boomers, born between 1948 and 1954 (and now age 56 to 62), were found not to have enough to pay for everyday expenses, as well as uninsured health care costs. Younger boomers, who are now age 46 to 55, are slightly better prepared, with 43.7% having insufficient resources.
For Generation Xers (born between 1965 and 1974), the picture gets slightly worse again, with 44.5% of that group ill-prepared for retirement, according to the analysis by the non-profit EBRI, which based the study on a database of 24 million households that participate in 401(k) plans.
The retirement predicament for GenXers relates to an almost complete absence of any defined benefit plans for younger people, as well as the impact of inflation, especially on health care costs, explained Jack VanDerhei, EBRI research director.
Naturally, wealth makes a difference to retirement preparedness, too, with 70% of households in the lowest one-third of income at risk for running out of money. About 42% of the middle income group are at risk, according to EBRI. Not surprisingly, only 23% of the wealthiest households are at risk of running out of funds during their retirement.
The nonpartisan EBRI last performed this type of analysis in 2003. Since then, the picture for retirement readiness has improved a bit, due to changes in retirement plans, including automatic enrollment and escalation features, as well as the use of diversified target date funds.
These findings should spur “someone” to beef up retirement information and education, so that pre-retirees could really understand the challenge facing them. Mr. VanDerhei said.
“If people with significant savings gaps don’t start focusing on this until they turn 60, it’s virtually impossible to help them,” Mr. VanDerhei said. “But if I can get to someone at age 45, and convince them what they’re currently doing has virtually no chance of being successful, making up a deficit by saving an extra 3% to 5% isn’t difficult.”
A web calculator that allows people to see how much they need might help the situation, Mr. VanDerhei suggested. “There should be some way to educate these individuals to do some sort of
financial planning. They need to start with more information, and then they can go to their broker or whomever, to implement the plan.”
