A Possible Reason Baby Boomers Haven't Saved Enough for Retirement

by Susan Williams


There has been a flurry of articles lately about how financially ill prepared baby boomers are for retirement. In an article in Business Insider, they reported:

"According to a Legg Mason Investment Survey, US baby boomers (defined as ages 53 to 71 by Legg Mason) have on average $263,000 saved in defined contribution plans. But that figure is less than half of the $658,000 they say they will need to retire."

That's a pretty big gap between what people have saved and what they will need. This situation made me start to wonder how we managed to get to this point, and that's when it struck me.

Baby boomers are really the first generation of retirees working with Defined Contribution (DC) pension plans.

In a Pew Research report titled "Retirement Plan Access and Participation Across Generations," they reported that:

  • 44% of baby boomers have no work related retirement plans
  • 43% have defined contribution plans
  • 13% have defined benefit plans.

Defined contribution plans began to make their appearance in workplaces in the 1980s and employers were starting to roll them out to their employees with the intention that these plans would replace the previous Defined Benefit (DB) plans. Sure, there were some perks to these new DC plans.

Your pension plan was portable and you could take your money with you should you decide to leave the company. These plans also provided the opportunity for more control and management of the funds to the individual.

A Possible Reason Baby Boomers Haven't Saved Enough for Retirement

However, along with this increased control came additional responsibility and risk.

People were now expected to manage their own pension funds, and this is where I think the disconnect happened. When you're in your 20s and 30s, retirement seems so far off. It's something that is going to happen in the much distant future. You've got kids to raise, a home to buy, and bills to pay. Thinking about your retirement plan or putting aside that little extra for retirement is something you'll worry about later.

Besides you think, I've got a company pension, so what's there to worry about?

Chances are that many of us didn't actually know how to financially plan for retirement. Many of our parents had DB pension plans and a little bit saved on the side. The company took care of worrying about the investment side of their pension, and as a result, they likely received a pre-determined monthly pension payment for life.

As baby boomers, we are really the first generation of DC pension people and as much as the companies may appreciate not holding the direct responsibility for the performance of these pension funds, maybe we're not as educated or knowledgeable in understanding how much we will actually need and how best to invest to allow us to get us to reach a comfortable retirement.

Related: Factors to Consider to Determine the Best Retirement Age for You

And that's how we possibly arrived at this point with about 50% of baby boomers not having enough saved for comfortable retirement and the runway to save is getting shorter as we go. As a result, some don't have a retirement plan to begin with and some just do not know how to save and manage with a DC plan.

This retirement financial shortfall has probably contributed to the Gallup poll finding that 74% of working Americans plan to work past retirement age.

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So, what are we to do?

Short term, I guess working and saving as much as we possibly can while we can is probably the best thing we can do right now. Maybe the most valuable action we can take in the long term is to educate our kids and break this cycle.

Pew Research reported that 68% of millennials don't even have a pension plan. They are completely on their own when it comes to saving for retirement.

By sharing our own experience and knowledge, maybe we can help educate them to start thinking earlier about their own retirement savings, so that hopefully they don't end up where we are now.

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Susan Williams is the Founder of Booming Encore. Being a Boomer herself, Susan loves to discover and share ways to live life to the fullest. She shares her experiences, observations, and opinions on living life after 50 and tries to embrace Booming Encore's philosophy of making sure every day matters.

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