A pair of new studies this week check in on how Boomers are faring in retirement and retirement readiness—and find that stock market gains in recent years have helped bolster retirement savings for most, but the savings gap between upper-income earners and those at the bottom has grown. And while retired Boomers generally appear to be a contented lot, most have a heavy reliance on Social Security as a critical income source.
“Because the market gains disproportionately benefited high earners with the most wealth and highest equity allocations, the disparity in retirement readiness between low- and high-income earners has widened.”
Vanguard’s Kelly Hahn
A survey released today from Pittsburgh-based retirement industry fintech provider IRALOGIX unveils fresh insights into the retirement experiences and financial preparedness of Boomers who retired in the past two to five years, along with some practical advice from respondents for future retirees. More on key findings from this study appear below.
That study comes on the heels of a June 17 release from Vanguard exploring the retirement readiness of Boomers based on findings from the latest Vanguard Retirement Outlook, which measures the sustainable replacement ratio and spending needs for retirees.
The analysis found the retirement outlook has improved for many Boomers, largely driven by higher wealth for all but the bottom quartile of wage earners. The strong market gains from 2019 to 2022, which included an 18% increase in the equity market, were a large contributor to the overall higher wealth.
“As a result, we see a meaningful improvement in retirement readiness for many Baby Boomers, but a savings gap still remains for all but the earners at the top 5th percentile,” said Kelly Hahn, Vanguard Investment Strategy Group’s Head of Retirement Research.
The retirement savings gap for median income earners narrowed by eight percentage points, from a 33% average savings shortfall per year to 25%. But the difference between low- and high-income workers grew. Workers in the bottom quartile face a savings gap of 36% between their sustainable replacement rate and their expected spending needs.
“Because the market gains disproportionately benefited high earners with the most wealth and highest equity allocations, the disparity in retirement readiness between low- and high-income earners has widened,” said Hahn.
In aggregate, the Vanguard research found about 70% of all Boomers who have yet to retire are at risk of not being able to replace their preretirement lifestyle.
“The likelihood of falling short is concentrated among those in the lower end of the income distribution. Despite the progressivity of Social Security, it is not enough to fund a comparable lifestyle in retirement,” Hahn said. “In contrast, those high earners in the top 5th percentile have a significant savings surplus equal to 29% of their preretirement income. This is due to high earners requiring much less to maintain a comparable lifestyle in retirement and having saved the most for their retirement.”
Read more on the Vanguard research here.
Counting on Social Security
Meanwhile, today’s IRALOGIX survey found many Boomers reporting that their financial situation in retirement is “better” or “as they anticipated” and that they don’t need to “unretire” and start working again due to economic necessity. Those responses, however, are counterbalanced by significant challenges, including adapting to fixed incomes, coping with rising living costs, feeling socially disconnected, and managing healthcare expenses, along with that heavy reliance on Social Security as a critical income source.
“Retired boomers have a unique perspective on financial security compared to other generations. They rely strongly on early and proactive retirement saving, and the importance of stable, dependable income sources like Social Security and traditional monthly pensions,” said Peter J. de Silva, CEO of IRALOGIX. “Unlike younger age groups, Boomers appear to view financial security as not just about accumulating wealth but also about managing unexpected costs and ensuring long-term stability.”
Some key findings from the study:
- High Confidence in Financial Preparedness: Over half of the respondents (54%) expressed being “highly confident” or “confident” about their financial readiness for retirement. A significant 73% reported that their financial situation was “much better” or “just as they anticipated” before they retired.
- Varied Retirement Income Sources: Social Security is the primary source of retirement income for 36% of respondents, the most frequently cited source among respondents. Other significant sources include traditional monthly pensions (16%) and employer-sponsored retirement plans (15%). Other responses included investments, IRAs, and outside savings.
- Dependence on Social Security: When asked how dependent they are on Social Security for monthly expenses, 34% of respondents rated their dependence as “highly dependent” (5 on a 1-5 scale). A further 37% ranked their dependence 3 or 4, indicating medium to strong reliance on their monthly Social Security checks. Just 14% said they were “not at all” dependent on Social Security.
- Early and Proactive Savings: A majority (56%) began saving in earnest for retirement between the ages of 25-40, emphasizing the importance of early financial planning. Conversely, 16% either started saving for retirement after age 60 or went into their retirement without any savings at all. 54% managed their accumulation strategies, while half that number (27%) relied on financial professionals to help them plan for retirement.
- Confidence in Longevity of Savings: 57% of respondents believe it’s “not at all likely” they will run out of money during their retirement years. However, 26% think it’s “somewhat likely,” and 9% say it’s either “highly likely” or they’ve “already run out of money.”
- Advice for Future Generations: The surveyed retirees emphasize the importance of early and consistent savings, with 45% advising younger generations to establish a retirement savings plan as soon as possible and adhere to it diligently. Other advice included “Pay off as much of your debt as you can before you retire; you don’t want to take it into retirement with you” (19%), and “Set specific retirement goals early on and factor them into your savings plan” (12%).
Blame game
More than one quarter (26%) of retired Boomers blame themselves either for running out of money in their retirement or for the possibility of quickly depleting their financial resources (“I didn’t start saving early enough or save enough”). Another 16% blame the government (“my Social Security is too low to meet my financial needs”), and 15% point to healthcare costs (“they’re much higher than I expected”).
The survey also found adjusting to a fixed income presents significant challenges for some retirees. The increasing costs of living, including healthcare expenses, were noted by 29%, while 17% cited the erosion of purchasing power due to inflation.
The survey was commissioned by IRALOGIX and was conducted in May 2024.
SEE ALSO:
• Gen Xers Doubt Their Ability to Retire Securely
• Wealthy Americans Fall Short of Retirement Goals
• Generational Investor Confidence High Thanks to More Options, Starting Sooner
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.