A majority of Americans who will turn age 65 between 2024 and 2030—known as “Peak Boomers”—are not financially prepared for retirement, says Robert J. Shapiro, former Under Secretary of Commerce for Economic Affairs.
“America has never seen so many people reaching retirement age over a short period, and well over half of them will find it challenging to meet their needs through their retirements.”
Robert J. Shapiro
Today, Shapiro and noted economist Jason Fichtner released the findings of a definitive study commissioned by the ALI Retirement Income Institute examining the economic impact of the greatest surge of retirement age Americans in U.S. history at the National Press Club.
“America has never seen so many people reaching retirement age over a short period, and well over half of them will find it challenging to meet their needs through their retirements, let alone maintain their current standard of living,” Shapiro said. “They lack the protected income that many older Boomers have from solid pensions or higher savings.”
Between 2024 and 2030, 30.4 million Americans will turn age 65. These Peak Boomers represent the youngest, largest, and final cohort of the Baby Boomer generation.
Based on their assets and their likelihood of living up to 20 or more years in retirement, the study found two-thirds of Peak Boomers will be challenged to maintain their lifestyles in retirement.
More than half (52.5%) have assets of $250,000 or less, making it likely that they will run through their savings and have to rely mainly on Social Security for income. Another 14.6% have assets of $500,000 or less, so nearly two-thirds will strain to meet their needs in retirement. On average, Social Security is intended to replace about 40% of a person’s annual pre-retirement income, according to the Social Security Administration.
Stark demographic differences
The new study also found there are stark differences in retirement savings and security based on gender, race and ethnicity, and education. While the median retirement savings for all Peak Boomers is $225,000, it is $269,000 for men compared to $185,000 for women; $299,000 for whites vs. $123,000 for Hispanics and $49,000 for Blacks; and $591,000 for college graduates vs. $75,000 for high school graduates and $7,000 for those without high school diplomas.
The study also found Peak Boomer women will struggle financially in retirement compared to their male counterparts. The aforementioned gender disparity between the median retirement savings peak boomers—$269,000 for men vs. $185,000 for women—includes their defined contribution (DC) plans: 48% of male Peak Boomers have such plans with accounts worth $99,000 compared to 41% of women with DC plan assets of $60,000.
The median Social Security benefit for retired Peak Boomers will be $28,400 for the men vs. $21,400 for the women, a disparity of one-third.
Nearly one in four (24%) Peak Boomers have defined benefit pensions; and among them, the demographic disparities are modest. Private employers provide about half of those pensions and state and local government provide just under half. Based on 2022 data, however, the median annual benefit for the public defined benefit pensions is $25,450 or 44% greater than the median benefit of $17,640 for the private ones.
“The saving grace for some Peak Boomers is that they can count on the added protected income that a pension provides in retirement,” said Fichtner, Executive Director of the ALI Retirement Income Institute, and Chief Economist at the Bipartisan Policy Center. “However, since only 4% of all private sectors 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.”
Following the release of the study, today’s event at the National Press Club featured a special panel including Jean Chatzky, Education Fellow, Retirement Income Institute & CEO, HerMoney; Caroline Feeney, EVP & CEO, U.S. Businesses, Prudential Financial; Ellen G. Cooper, Chairman, President & CEO, Lincoln Financial Group; Bryan Pinsky, President, Individual Retirement, Corebridge Financial; William Gale, Chair, Federal Economic Policy, Brookings Institution; and Shai Akabas, Chair, Federal Economic Policy, Brookings Institution, Executive Director, Economic Policy Program, Bipartisan Policy Center.
Impact of Peak Boomers on the economy
Between 2024 and 2030, the retirement of Peak Boomers, who currently fill 10% of U.S. jobs, will have a range of effects on the economy, from the many millions of job vacancies and slower productivity gains to added burdens on entitlement programs such as Social Security.
• Productivity: Employers will have to replace between 10.8 million and 14.8 million Peak Boomer employees, including 1 to 2 million each in manufacturing, construction, health care, education, and professional services. This unprecedented drain of experienced workers will directly dampen productivity by 0.9% to 1.3%.
• GDP: While other factors, notably younger generations filling the positions vacated by Peak Boomers, will partially offset these effects, the direct impact of their retirements will reduce GDP growth by 7.3% by 2030.
• Consumer Spending: In retirement, Peak Boomer consumer spending will decline 15.3% and hit the transportation sector the hardest. Other sectors facing significant downdrafts from those retirements include utilities, wholesale trade, and real estate.
• Entitlement Programs: As Peak Boomers draw on Social Security and Medicare, their benefits will add $347 billion to entitlement spending by 2030, although the projected mortality of Boomers will offset 61% of Social Security’s additional costs and 58% of the additional costs for Medicare.
SEE ALSO:
• Retirement at 65 ‘Not Achievable’ Say Most Near-Retirees
• ‘Peak 65’ Women Show Interest in Annuities, Despite Unfamiliarity
• With ‘Peak 65’ Nearing, More Advisors Consider Annuities
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
