Busted Boomers and Beyond: Living with Less from Social Security and Pensions

The Last Fully Covered Social Security and Pension Recipients
The Last Fully Covered Social Security and Pension Recipients

As millions of baby boomers barrel headfirst into retirement, the sheer size of that generation is driving massive shifts in the way we think about -- and fund -- our post-working years. Indeed, at the rate things are changing and in the direction they're moving, the early boomers are on track to be the lastpeople to receive both full pensions and full Social Security benefits.

A combination of an extended bad employment market and a large number of boomers hitting Social Security eligibility has put an incredible strain on that system's finances.

Indeed, by the time 2036 rolls around -- or potentially sooner -- Social Security's Trust Fund is expected to be exhausted, which we lead to benefits falling by about one quarter. And even among those boomers with pensions, the ones born at the tail end of the boom are expected to have a mere 53% of the pension wealth of earlier generations.

How Much Will Your Retirement Income Be Slashed?

With Social Security's Trust Fund not expected to last as long as the boomers do, and with so many pensions winding down, there's little guaranteed money left to count on when it comes to retirement planning.

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According to a recent study by The Urban Institute, somewhere between 30% and 40% of later-born boomers won't have the financial resources to replace even 75% of their pre-retirement income.

That 75% level is generally regarded as being in the neighborhood of where you'll want to be in order to maintain your lifestyle once you stop drawing a paycheck. The less of that income stream that comes from guaranteed outside sources, the more of it will need to come from you. And that becomes ever more important the further away from retirement you are.

If 30% to 40% of later-born boomers will be unable to reach that 75% threshold, imagine what the picture will look like for Gen X, Gen Y, the millennials, and later generations with even less in guaranteed retirement pay.

Heads Up, Gen X

It's not a pleasant picture, especially for those who don't prepare now for that eventuality.

The good news (if you can call it that) is that for those who are late in the boomer generation or are members of any generation that follows, there is still time to plan and build the nest egg you need. The bad news is that the longer you wait, the tougher it gets on two fronts:

  • The longer you wait, the fewer years you have to let compounding work for you, and

  • The longer you wait, the more cash you need to put away each year to sock away the same total amount.

It's not exactly rocket science, but it does take decades of discipline to achieve a viable solution to this twofold problem. Let's say you've got a target to save $250,000, which is enough, based on the 4% rule, to provide a $10,000 annual income supplement to Social Security and whatever pension you may have. The table below shows how much you'll need to save each month, based on various return rates and years of savings, to reach that target:

Years to Go

8% Annual Return

6% Annual Return

4% Annual Return

2% Annual Return

0% Annual Return





































Source: Author's calculations.

What's easier? Coming up with $170 a month today, or $3,400 a month 25 years from now? That's assuming your annualized returns come to 8%. But even if you think you'll earn 0% annual returns typical of today's savings accounts over the life of your investments, saving now rather than putting off is still the way to go. Come up with around $700 a month now or you'll be scrambling to find nearly $4,200 a month in 25 years.

No matter how you estimate your potential returns, starting now makes it a significantly easier nut to crack than waiting to begin until retirement is already staring you in the face.

Ready or Not, Your Day Will Come

The cold, hard reality is this: The earliest baby boomers -- today's retirees and near-retirees -- will likely receive their expected pensions and Social Security benefits. They will also be among the last able to rely on a retirement with fully funded benefits, too.

The further away you are from retirement, the larger the question marks become, and the less secure the guarantees. But at least you have time. Time is a gift that is either used wisely or squandered meaninglessly. The choice is yours: Start preparing now, or face a future where the only thing that is certain is the inevitable hit to your own retirement that comes from doing nothing at all.

For more of The Motley Fool's research about Social Security, Medicare and retirement, click here.