Younger Boomers Have Less: How to Avoid Running Out of Money in Retirement

Younger baby boomers significantly lag older baby boomers in retirement savings by an average of more than $50,000, according to a new study from the Center for Retirement Research at Boston College. The study attributes the lag in savings to the 18-month-long Great Recession and, to a lesser extent, the changing demographics of younger baby boomers.

Consider working with a financial advisor to maximize your retirement net egg.

Varied Retirement Savings of Baby Boomer Cohorts

The research focuses on the retirement savings of those born from 1946 to 1964. It finds that the youngest cohort of this generation, those born from approximately 1958 to 1964, have combined retirement assets averaging $299,700 – including pensions, Social Security benefits and personal savings averaging. By contrast older baby boomers have an average of $350,000 or more.

The researchers used the Health and Retirement Study to look at actual patterns of wealth accumulation by cohort and the Survey of Consumer Finances to gather insights on the experience of older boomers over their work life.

Why Younger Boomers Have Less Retirement Savings

The study attributes the relatively low level of retirement savings by late baby boomers to two factors, the Great Recession, which started in late 2007, and the changing demographics of younger baby boomers.

Before the end of the Great Recession in June 2009, unemployment soared to 10%, hitting many younger boomers – aged 42 to 49 at the time – during their peak earnings years. Even those who managed to keep their jobs faced losses, as many employers slashed salaries and stopped matching employer contributions to workplace 401(k) retirement accounts.

The link between work and wealth accumulation declined significantly for younger boomers, compared to older boomers, reducing their retirement wealth by $55,600 more, the report says.

The decline in wealth, the study concludes, “is a Great Recession story."

Other Factors in Young Boomers’ Lower Savings

The study also attributes some of the difference to demographics: A higher percentage of Black and Hispanic households comprise the younger baby boomer cohort.

“Black and Hispanic households have less wealth than White households, so when they increase as a share of the total population, average cohort wealth will decline,” the report states. “Similarly, a decline in the percentage of households married or with a college degree will bring down the average. These changing demographics, along with a decline in work activity, accounted for 29 percent of the total decline.”

Ways to Catch Up if You’re Nearing Retirement

Younger boomers – who have four to nine years until they reach their full Social Security retirement age – still have a last chance to boost their retirement savings. These practices could help you reach your goals, as well as connecting with a financial advisor to make a personalized plan.

Save more: The quickest way to add to your retirement nest egg – and increase your eventual compound gains – is to save more in your retirement account. Reviewing your household budget to cut expenses or finding ways to increase your income will allow you to add to your retirement investments.

Add an IRA: You can add an individual retirement account (IRA) even if you participate in a 401(k) plan at work, either a traditional account or a Roth IRA, where you contribute after-tax dollars but your gains won't be taxed in retirement. The tax deduction on traditional IRAs starts to phase out after income of $73,000 (single filers) or $116,000 (joint filers). Your Roth IRA contributions are limited or disallowed after income of $138,000 (single filers) or $218,000 (joint filers).

Catch-up contributions: Late boomers are well over the age limit of 50 to start making catch-up contributions to Individual Retirement Accounts and within workplace plans such as 401(k) accounts. boomers can sock away an additional $1,000 over the $6,500 annual cap for all IRAs, and can add $7,500 after maxing out 401(k) deferrals at $22,500.

Delay Social Security: Your Social Security benefit amount increases by 8% for each year you delay collecting benefits after you reach your full retirement age (age 66 to 67 for most boomers). Couples also can weigh strategies for collecting spousal benefits through Social Security.

Work longer: Staying on the job makes it easier to delay collecting Social Security (above) and means you won't need to tap savings to pay your living expenses. Working part-time during retirement also reduces your retirement withdrawals to stretch your savings. Working won't cause your Social Security earnings to be taxed unless you're collecting benefits before your full retirement age.

Other options: You can use an annuity to provide consistent income during retirement, especially annuities that delay payments until later in retirement. Another option is tapping home equity through the use of a reverse mortgage, which allows you to live in your home while withdrawing some of its cash value. Another option is the use of a life insurance retirement plan, which uses permanent life insurance to generate earnings.

Bottom Line

Younger boomers, those born from approximately 1958 to 1964, have significantly less wealth than older boomers. The average difference is about $50,000. Two factors account for the differences, a evolving composition of households and a weakening for younger boomers of the link between work and wealth accumulation.

Tips for Retirement Planning

• A financial advisor can help you build a retirement plan. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

• Check out our free retirement calculator to get a quick estimate of how much you will need to retire, based on your income, age, when you plan to start Social Security and how much you are saving.

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