‘This isn't part of the American dream’: The youngest cohort of baby boomers is gearing up for retirement — but two-thirds will have to rely primarily on Social Security

Many young boomers at risk of running through savings

The report found that nearly 53% of peak boomer respondents have retirement assets of $250,000 or less and another 14.6% have retirement assets of $500,000 or less — even though several studies posit Americans require around $1 million or more to retire comfortably.

For example, a 2024 report from Northwestern Mutual reveals baby boomers believe they’ll need about $990,000 on average to afford a comfortable retirement.

The ALI Retirement Income Institute also notes there are strong disparities in retirement savings, depending on gender, race and ethnicity and education.

For example, peak boomer men have a median retirement balance of nearly $269,000, while women of the same age have a nest egg of just $185,000. College graduates have savings of around $591,000, but those with just a high school diploma report balances closer to $75,000.

And white peak boomers have saved up about $299,000 for their golden years, compared to the $49,000 average for black peak boomers. Research from the National Institute on Retirement Security shows workers of color are significantly less likely than white workers to have an employer-sponsored retirement plan, an individual retirement account (IRA) or pension plan — leading to a much lower retirement savings rate.

The ALI Retirement Income Institute has concerns that many peak boomers will swiftly run through their savings and end up largely reliant on Social Security — even though these benefits are intended to replace just about 40% of a person’s annual pre-retirement earnings, according to the Social Security Administration.

“Notably, Social Security will not be sufficient to protect seniors from near poverty,” the authors say in the report.

To make matters worse, the Social Security trust fund is projected to run dry by 2033, which means retirees will only receive 77% of their scheduled benefits in later years unless Congress acts.

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Most young boomers lack defined pension plans

While many older generations may have enjoyed the security of defined pension plans in their golden years, these benefits have mostly faded into obscurity — with employers more likely to offer defined contribution plans, like 401(k)s instead.

Today, less than a quarter of peak boomers hold defined benefit pensions, which are typically provided by the private sector or state and local governments, reports the ALI Retirement Income Institute.

“The saving grace for some peak boomers is that they can count on the added protected income that a pension provides in retirement,” says Jason Fichtner, executive director of the ALI Retirement Income Institute and chief economist at the Bipartisan Policy Center.

However, Fichtner adds only 4% of all private sector workers had protected income from a pension as recently as 2020. “... this economic study of peak boomers should be a cautionary tale to all Americans planning for retirement,” he says.

What are some options for young boomers?

Although some baby boomers are opting to extend their employment in order to shore up more savings for when they eventually exit the workforce, some often end up leaving their jobs earlier than they planned due to health concerns or layoffs.

That said, the report maintains there are still options for older adults to make ends meet. For example, low-income peak boomers aged 65 and older may qualify for the Supplemental Security Income program if they earn less than $1,971 a month from their other sources of income.

Home equity is another potential financial resource since nearly two-thirds of "peak boomers" also own their homes and have equity in them. However, the authors warn that this option is typically expensive and difficult. "In recent years, those loans have involved substantial costs, including interest rates averaging 8 to 10 percent in 2023, originaton fees, appraisal fees, and closing costs. Those costs help explain why from 2018 to 2020 an average of less than 2 percent of seniors per year borrowed funds based on home equity," they wrote.

The report also mentions private annuities as another potential resource since they are assured lifetime income streams. Boomers tend not to own them, and the authors suspect one reason is because they underestimate their likely lifespans and the prices seem excessive as a result. The American Council on Capital Formation recommends mandating that employer 401(k)s and other defined contribution plans provide life annuities as a withdrawal option.