Are You a Baby Boomer with $500,000 or Less in Retirement Savings?

Baby Boomers are hitting the traditional retirement age of 65 in record numbers, with an estimated 30.4 million Americans set to do so between 2024 and 2030. This year marks the peak of what is termed Peak 65, with an average of 11,400 individuals turning 65 every day, achieving a historic benchmark of 4.18 million people reaching this age in a single year.

However, a recent economic analysis from the Retirement Income Institute reveals that two-thirds of these individuals may face significant challenges in meeting their financial needs during retirement, much less maintaining their current standard of living.

More than half (52.5%) of the Peak Boomers possess assets totaling $250,000 or less. With the expectation that many will spend 20 years or more in retirement, they risk depleting their retirement savings and relying primarily on Social Security, especially as health care expenses are likely to rise later in their retirement. It’s important to note that Social Security typically replaces only about 40% of an individual’s annual income prior to retirement. An additional 14.6% have assets ranging between $250,000 and $500,000, suggesting they, too, may face difficulties in addressing their retirement needs.

The economic analysis is supported by the results of a survey conducted earlier this year among 2,516 U.S. consumers aged 45 to 75, which included an oversample of those aged 61 to 65. This survey found that 51% of the youngest Baby Boomers have less than $100,000 in total investable household assets, with 45% already fully retired.

Perhaps most surprising is that 49% of Boomers aged 61 to 65 have begun claiming Social Security payments — including 77% of those who are already retired — far earlier than age 70, when benefits peak. Forty percent of those who claimed Social Security did so out of necessity, while 45% cited disability or an inability to work as the reason.

There is, however, some good news for millions of Peak 65ers: if they make strategic changes while there’s still time, the 47.5% of Baby Boomers with assets above $250,000, including the 14.6% possessing assets from $250,000 to $500,000, could potentially achieve a financially secure retirement, although such outcomes are not assured. Those nearing financial stability should consider these seven strategies to optimize their resources:

1. Budget, budget, budget

Develop and adhere to a robust budget that encompasses both discretionary and non-discretionary expenses while accounting for inflation. Expect to spend more early in retirement, and maintain a reserve for health care expenses as time goes on. Boomers with limited assets must realize that a secure retirement without a budget is unrealistic.

2. Understand the different types of incomes

Grasp the differences between protected income, which is guaranteed from Social Security, pensions, and annuities, and probable income, which derives from stocks, bonds, and other market assets that can fluctuate. Ideally, utilize your protected income to satisfy your essential monthly expenses while using other investments for discretionary spending.

3. Tap your real estate holdings for income

Evaluate the income potential of your property and other real estate assets as possible income sources, whether through rent, sales, or loans against your equity. For approximately two-thirds of Peak Boomers, their home represents their largest asset, often with substantial equity accumulated over time.

4. Delay full-time retirement

If feasible, consider continuing to generate earned income by working part-time. Not only will this extra income help extend your savings, but many Baby Boomers also find purpose and satisfaction in remaining part of the workforce.

5. Claim Social Security as late as possible

Individuals approaching retirement should contemplate postponing Social Security benefits until at least full retirement age of 67, as delaying claims beyond age 62 results in approximately an 8% increase in monthly benefits for each year until age 70.

6. Consider a bridge annuity

To avoid losing out by claiming Social Security early, consider utilizing annuities as a temporary “income bridge” that spans the years between full or partial retirement. A bridge annuity can provide guaranteed monthly income, representing a cost-effective method for maximizing Social Security benefits.

7. Seek professional guidance

A Nobel prize-winning economist has noted that decumulation is one of the most challenging problems in finance. Therefore, seek the advice of a financial professional, even if you are starting with a basic retirement plan. Depending on your situation, they can offer insights on topics ranging from income and withdrawal strategies to longevity planning and tax efficiency. In addition to helping you optimize your assets, a financial planner can grant you peace of mind.

The unprecedented rise in the number of retirement-age Americans is a significant milestone for countless Baby Boomers. Those who follow these seven best practices will have the highest chance of achieving the financially secure retirement they have long sought.

Cyrus Bamji is a leading expert and innovator in evolving and modernizing retirement concepts. He serves as the Chief Strategy & Communications Officer at the Alliance for Lifetime Income, a nonprofit aimed at consumer education in Washington, D.C., where he drives initiatives in financial education, thought leadership, and consumer outreach to inspire Americans to think and plan holistically for retirement.

Jason J. Fichtner, PhD, is a Senior Fellow and the Head of the Retirement Income Institute, a research and thought-leadership program within the Alliance for Lifetime Income (ALI), overseeing the institute’s research, strategy, and operations. He is well-respected for his expertise on Social Security, federal tax and budget policy, and retirement security.

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