Baby boomers inching closer to retirement age

Baby boomers, people born between 1946 and 1964, make up one of the largest and most prosperous generations in U.S. history.

Retirement Prospects

The approaching retirement of the baby-boom generation has become a public concern - partly because of the budgetary pressures that will develop when baby boomers collect Social Security and Medicare benefits, but also because of claims that boomers are not accumulating enough private savings to finance their retirement.

However, there is no widely accepted standard of what constitutes "enough" savings, mainly because retirement preparations are largely a matter of personal choice.

Recent studies apply a range of standards and provide a more complete picture of boomers' finances.

Compared with their parents at the same age, baby boomers typically have higher income, are preparing for retirement at largely the same pace, and have accumulated more private wealth.

On the whole, boomers are on track to have higher income in retirement than their parents and appear much less likely to live in poverty after they retire.

However, about a quarter of baby-boomer households have failed to accumulate savings. They appear likely to depend on government benefits in retirement. At the other end of the spectrum, at least half of the households are expected to maintain their working-age standard of living during retirement.

For the remaining quarter of boomer households, the evidence is mixed: under midrange assumptions about saving, rates of return, and retirement age, they appear set to experience moderate declines in their living standard during retirement, which could be offset by modestly increasing saving and by working for a few more years.

Don't Delay

For households facing shortfalls in their retirement savings, relatively small changes in behavior can have surprisingly large effects. Because people who retire at 62 can expect to live another 20 years, each year they postpone retirement reduces their need for retirement savings by about five percent. An extra year of work also increases their Social Security benefits by several percent. Taken together, those effects lessen the total amount that people need to save, and the additional year gives them time to save more and earn returns on the assets they have already accumulated. As a result, households can make up for earlier shortfalls in retirement savings with surprisingly modest changes in behavior.