Why Baby Boomers May Not Have as Much Social Security Income as They Think

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Baby boomers may find they lack the Social Security income they require to retire comfortably, even if they aren’t relying on the government benefit for the bulk of their retirement funds. According to the Social Security Administration, there has been a shortfall in the Social Security Trust Fund. This fund provides income for retirees who have paid into the fund. It is expected the fund could run out of money by 2034 or 2035.

That doesn’t mean there won’t be any money left for late boomers or Gen X, however. Payroll taxes will cover a great deal of the benefits required. But it does mean that the government will need to step in and make adjustments to cover the balance of money needed for future retirees. Otherwise, benefit levels would have to be cut by roughly 23% to make up for the shortfall, according to reports from the Congressional Budget Office.

How Much Do You Need To Save for Retirement?

Reports and expert opinions vary dramatically in how much individuals need to save for retirement. Fidelity Investments advises the following:

• You should have at least six times your annual salary saved by the time you reach 50 years old.
• Eight times that amount by 60.
• 10 times the amount by 67 — which is the full retirement age for many boomers.

But even this estimate can vary. Do you expect to travel in retirement? Will you be downsizing your home to reduce expenses? How will you spend your free time?

If you intend to continue expensive hobbies to stay fit and active in your later years, you may need to have more money saved for retirement. Maybe you want to go back to school and launch a second career; that will also require more savings. But if a simple lifestyle is what you crave, you may be able to get by on less.

Additionally, whether or not you plan to continue working part-time in retirement factors into the retirement savings required.

It’s best to speak with a financial advisor to find out if you are on track to meet your personal retirement savings goals.

What Boomers Can Expect vs. What They Need for Retirement

Even with lifestyle variations in mind, there is a bare minimum you’ll need to have in retirement to cover your living costs. And it’s highly likely that Social Security won’t provide that amount. Here are some key points to know, according to a recent study from the Nationwide Retirement Institute:

• 21% of adults ages 50 and older say they have no plans for retirement income beyond Social Security.
• Only 31% said they have a pension in 2023.
• Meanwhile, 75% of adults 50 and older believe Social Security will run out within their lifetime.

Of those who have retirement savings beyond Social Security, the average 401(k) account balance was roughly $108,200, Fidelity reported to Bloomberg. That’s a far cry from the $1.8 million some sources say is needed for a retirement that could last 30 to 35 years.

Reasons Boomers Need More Retirement Savings

Boomers aren’t on track with enough retirement savings right now. And it’s only going to get worse, since this generation will need more money for retirement than past generations required.  

Longevity: A Challenge for Retirees

Longevity, the desirable trend of people living longer, is, unfortunately, wreaking havoc on retirement plans and causing concerns for all generations — especially baby boomers and Gen X.

Globally, life expectancy has risen to 73.4 years in 2019, up more than six years since 2000, according to statistics from the World Health Organization. This leads to longer retirements.

Medical Costs Rising in Retirement

Meanwhile, though, “healthy life expectancy,” has only increased by 5.4 years. That means medical costs may increase during retirement, requiring more funds not just for medical bills and prescription medications, but also possibly for services like nursing home care or assisted living.

One study from HealthView Services Financial, recently reported by GOBankingRates, revealed that a healthy 65-year-old couple who retired in 2021 can expect to spend up to $1 million on healthcare costs.

Inflation Cuts Into Retirement Plans

Finally, there’s the factor of inflation that has already hit our country. Even if inflation slows, the damage is done and retirement already costs more than it did in 2021. The Social Security Administration delivered a Cost of Living Adjustment increase of 8.7% in 2023, the largest in four decades.

But next year’s increase is likely to be less than half of that. This makes things harder for current retirees, but also indicates that Social Security benefits may not keep pace with inflation by the time the rest of the boomers retire.

Should You Wait Until After Full Retirement Age To Collect Social Security?

You can boost your retirement income by waiting until after full retirement age to begin collecting Social Security. FRA is 67 for Gen X and baby boomers born after 1960. But depending on your health, living circumstances and other retirement savings and investments, this may or may not be possible.

If you wait until 70 to collect Social Security benefits, you’ll earn an extra 8% each year between age 67 and 70. You can do this by delaying retirement altogether, or by living off other retirement investments until you reach age 70. At that point, you can start using Social Security to supplement your other retirement income, stretching your funds in case you live into your 90s.

Bottom Line

Even if you think you are well-prepared for retirement, future Social Security benefits could look different than what you expect. Speak to a financial advisor to see how you can potentially ramp up your retirement savings to plan for a longer, more fulfilling life in your later years.

Information is accurate as of Sept. 14, 2023. 

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