I read an article in The Economist recently, headlined, “Baby-boomers are loaded. Why are they so stingy?” It isn’t a fair headline. Some baby boomers are loaded. But many are struggling to make ends meet and approaching retirement with very little in their bank or brokerage accounts.
Born between 1946 and 1964, baby boomers are now aged 60 to 78. Some are well into their retirement years, while others are just approaching the door. There are many myths about how boomers have it better than other generations.
In reality, for every story about boomers holding 50% of U.S. net wealth, there are others about those who face homelessness, debt, and extreme financial stress.
Here are three boomer myths, debunked.
Myth 1: Baby boomers are financially ready for retirement
There’s an idea that baby boomers are wealthy and have stashed significant amounts of money into their retirement funds over the years. That’s only true for some.
Equally, more than half the Americans who turn 65 in the coming years will rely on Social Security to stay afloat. The Alliance for Lifetime Income says 53% of what it dubs “peak boomers” have less than $250,000 in retirement assets.
Indeed, according to a recent Northwestern Mutual study, boomers think they’ll need $990,000 to retire comfortably. More worrying? An AARP survey shows 20% of adults aged 50 and above have no retirement savings at all. In short, many boomers are not financially ready to retire.
What you can do:
If your retirement savings are not where you want them to be, start by working out what your spending might look like once you retire. Think about how much you’ll get from Social Security and how you will make ends meet. See if you can map out different scenarios and — if necessary — plan ways to reduce your living costs.
The difficult truth is that you may have to work more years than you had hoped, whether through a side hustle or continuing in your current career. In the meantime, review your spending and look for ways you can cut back. Put every spare dollar you can find toward your retirement. Even small amounts can help. Make the most of tax-advantaged accounts such as IRAs or 401(k)s.
Myth 2: Medicare will cover all boomers’ healthcare needs
It is true that Medicare covers nearly all Americans over 65. But it is not true to say that it covers all their healthcare costs. According to the Bank of America, Medicare covers about two-thirds of the total cost of healthcare.
That means retirees need to pay for their remaining medical expenses as well as their Medicare premiums. Bank of America notes that a 65-year-old man might need $184,000 and a woman would need $217,000 to be relatively confident of covering their retirement healthcare costs.
What you can do:
See if you can contribute to a health savings account (HSA). HSAs are rare in that they offer a triple tax benefit.
You can make tax-free contributions. Your investments then grow tax free. Finally, you don’t have to pay taxes on any withdrawals as long as you use them for health expenses.
If you are under 65 and have a high-deductible health plan, HSAs can be an incredibly tax-efficient way to save. Once you hit 65, you may be able to continue making HSA contributions for longer if you do not enroll in Medicare. There are pros and cons to this, so do some research to work out what will suit you best.
Myth 3: Boomers have paid off their mortgages and are debt free
It is hard to get a foot on the housing ladder today. The combination of record-high house prices and high mortgage rates has contributed to a housing affordability crisis. As a result, millennials and Gen Z tend to look at boomers and think they had it easy.
But high housing costs impact boomers, too — The Wall Street Journal says older adults make up the fastest-growing segment of the homeless population.
In terms of owing money, data from the Federal Reserve Bank of New York shows boomers have almost $3 trillion in total debt. That’s a mix of credit cards, car loans, mortgages, and other types of debt. Experian data shows the average credit card balance for boomers is $6,642.
What you can do:
Carrying debt can feel as if you’re dragging a financial weight behind you. Even more so when you’re entering a phase of life when you won’t be actively earning money. But some types of debt, such as mortgages, are more manageable than others.
Focus on paying down high-interest debt. There are different approaches, such as the debt snowball, where you tackle the smallest balance first and then move on to the bigger ones. It is difficult to dent your balance alongside all those other financial demands, but try not to give up.
Bottom line
When talking about generational differences in finance, it can sometimes feel like a competition as to who is worse off. The truth is that every generation faces challenges, and baby boomers are no different. Many boomers do not have enough funds to retire comfortably, especially not when you factor in healthcare costs.
If you are approaching retirement with limited funds and a heavy debt burden, don’t ignore the problem. Sit down with your finances and look for ways to cut costs or increase your income — or both. Even if you’re not able to stop work as early as you’d hoped, the changes you make in your budget today can still make a difference.
