Relatively Few Americans Enter Retirement Debt Free

Bankers Life Center for a Secure Retirement took a look at the debt levels and confidence of pre-retirees and retirees, particularly middle-income Boomers, and found that they are in poor shape. 

Just over half, 53%, of all Americans think that they will enter retirement debt-free, but only 23% do so. Eight in 10 middle-income Baby Boomers not yet retired currently carry some debt, and among those who are retired, 77% still carry debt.

Bankers Life defines middle-income as those with an annual household income between $25,000 and $100,000 and less than $1 million in investable assets. The research organization decided to take a look at the status of Boomer retirees as it has been five years since the first Boomer turned age 65.

Nearly four in 10 retired Boomers, 38%, have had to adjust their spending to compensate for a financial shortfall in retirement, and in 2015, 60% of non-retired Boomers are spending “as much as or more than their household incomes.” Among this group, the majority carry debt and other significant monthly expenses. Among the retired Boomers who have had to adjust their spending, 88% cut expenses, 30% sold possessions, 20% went back to work, 15% have sought help from family or friends, and 7% have either sold or remortgaged their house.

Nearly seven in 10 Boomers, 69%, do not know if they will have enough money to live comfortably until age 85, which is the Social Security Administration’s (SSA’s) projection for their life expectancy. Eighty-three percent do not think they will have the resources to live until age 95, even though the SSA says that 10% of Boomers will reach that age.

Only 9% of those surveyed said they were very prepared for retirement, yet 39% have not taken any active retirement planning steps. Only 28% of retired middle-income Boomers say they were financially prepared when they retired. Seventy-eight percent of non-retired middle-income Boomers plan to start taking Social Security when they turn 65, yet only 38% actually do so, and only 51% are confident in their understanding of annuities. About the same percentage, 48%, believe they are knowledgeable about Roth IRAs.

Because the oldest Boomers started working at a time when pensions were commonplace and 401(k)s were only just being created, 48% of already-retired middle-income Boomers receive a pension. Conversely, among non-retired Boomers, only 33% expect to receive a pension.

Middle-income Boomers are not doing enough to plan for their retirement, the study also found. Seventy-five percent of this demographic group have not calculated a monthly retirement income goal that they need to reach, and 79% do not know what percentage of their pre-retirement income they will need to live on. Thirty-two percent did not start planning for retirement until after age 50, and 58% didn’t start planning until after age 40.

Bankers Life Center for Retirement’s study, “Paying for the New Retirement: Responsibilities and Challenges for Middle-Income Boomers,” concludes that the Boomer experience “may provide a cautionary tale for generations to follow. More education, more advice and guidance, and ultimately more retirement savings will be necessary for middle-income Americans to live comfortably in their retirement years.”

The Center recommends that middle-income Boomers research Social Security options, aggressively pay down debt, minimize monthly bills, remain in the workforce for as long as possible and develop a well-thought-out retirement plan.

“Americans tend to prepare for what they can anticipate,” says Scott Goldberg, president of Bankers Life. “Most do not anticipate the amount of debt they will carry into retirement, in addition to other unplanned expenses such as long-term care and various health-related costs. Our studies show us that few Boomers are taking the steps to plan for and overcome these hurdles.”

The full report can be downloaded here.