Preparing Baby Boomer Workers for Retirement

Seventy-one percent of Baby Boomer workers have access to a 401(k) or similar plan offered by their employers, including 78% who are working full-time and 42% part-time.

These findings are corroborated by findings from the employer component of the 15th Annual Transamerica Retirement Survey, which found 79% of employers offer a 401(k) or similar plan to their employees but, among them, only 49% extend eligibility to part-time workers.

Eighty-one percent of Baby Boomer workers who are offered a 401(k) or similar plan participate in that plan. Among those who are participating, the annual percentage of their salaries saved is 10% (median).

Among Baby Boomer workers who are currently participating in a plan, 23% have taken some form of loan and/or early withdrawal from a 401(k) or similar plan, including 16% who have taken a loan and 9% who have taken an early withdrawal (e.g., took a loan and didn’t repay it,  cashed out when changing jobs, hardship withdrawal).

Sixty-four percent of Baby Boomer workers are saving for retirement outside of work. Among those, savings accounts are the most frequently cited vehicle (66%), followed by IRAs (51%), stocks (35%), primary residence (3%), mutual funds (33%), and life insurance policies (31%). Fewer than one in five (18%) are investing in an annuity.

Despite some confidence-shaking events during the economic turbulence in recent years, household retirement savings increased from 2007 to 2014. However, in many instances, this growth in savings is still inadequate to fully fund an individual’s or family’s retirement income needs. Baby Boomers have saved $127,000 (estimated median) in household retirement accounts compared to $75,000 in 2007.

Many Baby Boomer workers (46%) expect their primary source of income in retirement to be self-funded through retirement accounts or other savings and investments, including 34% who expect to rely on 401(k), 403(b), or IRAs and 12% to rely on other savings and investments. More than one-third (36%) expect to rely on Social Security as their primary source of income when they retire. Just 12% expect to rely on company-funded pension benefits.

The survey identified six steps for retirement planning and saving in order to improve Baby Boomers’ long-term financial outlook and achieve retirement readiness:

1. Take proactive steps to remain employed. Expectations of working past age 65 require that Baby Boomer workers remain employable. The survey asked Baby Boomer workers what steps they are taking to help ensure they can continue working. Most are staying healthy (65%), 54% are focused on performing well at their current job, and 41% are keeping job skills up-to-date. However, responses were much lower for networking (16%), scoping out the employment market (14%), and going back to school (5%). A further analysis of these responses found that 92% are taking at least one of the six proactive steps identified; however, only 1% are pursuing all six steps.                  

2. Calculate retirement savings and income needs. Baby Boomer workers estimate that they need to save $800,000 (median) to feel financially secure in retirement. Forty-seven percent believe that they need to save $1 million or more. However, for many, the basis of their estimated retirement savings needs is suspect: almost half (48%) guessed their retirement savings needs. Just 11% have used a retirement calculator or completed a worksheet and only 5% say the amount was given to them by a financial adviser.

3. Develop a written strategy for retirement. One of the most important secrets to retirement readiness is having a well-defined strategy. Only 14% of Baby Boomer workers have a written plan. A strategy should consider a broad range of factors including on-going living expenses, savings and income needs, government benefits, health care costs, investment returns, inflation , tax planning, long-term care, estate planning, and contingency plans for savings shortfalls.

4. Consider seeking guidance from a professional adviser. Planning for retirement can be very complicated and related decisions carry profound financial consequences. Only 40% of Baby Boomer workers who are saving and investing for retirement use a professional financial adviser to help them manage their investments.

5. Open up a frank dialogue with family. Only 9% of Baby Boomer workers frequently discuss saving, investing and planning for retirement with family and friends. Among Baby Boomer workers who are married, only 40% say they are “very familiar” with their spouse’s savings. Now is the time to have candid conversations to set expectations regarding plans, preparations, and potential need to receive or provide financial support to any loved ones.

6. Create a “Plan B.” Delaying retirement and/or continuing to work in retirement is an effective way to continue generating income, bridge savings shortfalls, and stay active and involved. However, for some this may not be possible when the time comes. Only 26% of Baby Boomer workers have a backup plan for retirement income if forced into retirement sooner than expected.

Harris Poll conducted the 15th Annual Retirement Survey on behalf of Transamerica Center for Retirement Studies. A telephone survey was conducted within the United Stated by between July 31 and September 17, among a nationally representative sample of 751 employers, including large (500 or more employees) and small (10 to 499 employees) companies. An online survey was conducted within the United States between February 21 and March 17, among a nationally representative sample of 4,143 full-time and part-time workers, including 1,021 Millennials; 1,120 Generation X; 1,805 Baby Boomers; and 197 who were born prior to 1946.

The survey found Baby Boomers want a phased retirement.   

The survey report can be accessed here.