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Study Says Lower-Income Gen Xers, Baby Boomers Will Run Out of Money in Retirement

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Study Says Lower-Income Gen Xers, Baby Boomers Will Run Out Of Money In Retirement

Recent research shows that baby boomers and Generation Xers who are in the lower-income brackets are more likely to fall short of their retirement goals, which will leave them lacking enough money to live on.

Researchers at Northwestern Mutual Planning & Progress found that some people may run out of funds within their first year of retiring and that 22% of Americans have less than $5,000 saved for retirement.

While households in the lowest income brackets are most severely affected, even some people who fall in the highest income brackets will likely run out of money at some point during retirement.

Faced with a choice between delaying their retirement or risking financial ruin, the outlook for many people’s futures remains grim. 

The survey lists several more surprising statistics that indicate trouble is on the horizon for retirees:

  • 22% of Americans have less than $5,000 saved for retirement.
  • 15% have no retirement savings at all.
  • 56% don’t know how much money they need to retire comfortably.
  • 41% are taking no steps to prevent themselves from running out of retirement savings, though many see this as a possibility.

After gathering and analyzing these findings, researchers have concluded that people who are in the lowest income bracket are extremely vulnerable. Those in this category should be concerned about the possibility of quickly running out of funds and taking steps to enhance their retirement preparedness.

People in all categories, however, can find themselves at risk, and each person’s likelihood of running low on funds will depend not only on their current financial status but also on their health status. Some people may need extra funds for health care. Not all health issues are predictable, and what exists now may be complicated later.

A perfect example is a COVID-19 pandemic, which has only exacerbated the retirement fund shortage.

According to 2021 data from the Northwestern Mutual Planning and Progress Study, the pandemic has forced 83% of Americans to make adjustments to their financial plan. Even more worrying is that 18% say it has set back their financial goals by 1-2 years and 12% say it has set them back 3 years or more.

Baby Boomers, especially, are facing financial challenges stemming from medical expenses. Even if health facilities for skilled nursing care will pay 100% of costs, some households will still run out of money far before they should.

What to do

First, it’s important not to expect Social Security to keep you afloat in your golden years. It won’t provide enough income for you to live off of in retirement. If you’re like the typical recipient, your benefits will cover roughly 40% of your previous income, assuming that Congress doesn’t move to slash future Social Security benefits.

If you have not started saving for retirement, regardless of your age, start doing so now. Thanks to compounding interest and earnings, the more you start stocking away now, the more money you can earn in your retirement funds in the future.

If you begin setting aside a decent chunk of money each month, and continue doing so consistently for the remainder of your career, you have more than enough opportunity to catch up.

The following shows how much money you would have when you retire at the age of 67 if you start putting away $500 a month at different ages:

  • 37 years old: $567,000
  • 42 years old: $379,000
  • 47 years old: $246,000
  • 52 years old: $151,000
  • 57 years old: $83,000

You should review your retirement plan and accounts annually and increase how much you set aside if you feel you are not meeting your retirement savings goals. It’s never too late. Update your options as needed, and take into account any long-term changes in health conditions.

To learn how our unique insurance options can help you with retirement, give Premier Insurance Services a call or contact us.