The report: The Peak Boomers Impact Study [April 2024]
Source: Retirement Income Institute and Alliance for Lifetime Income
In the next few years, more Americans than ever will reach the traditional retirement age of 65. A study commissioned by the Retirement Income Institute and the Alliance for Lifetime Income found nearly two-thirds of those approaching retirement age are unprepared and will struggle to meet their financial needs. It noted wide disparities in retirement security based on gender, ethnicity and education. Meanwhile, the decline of defined benefit programs will lead more than half of respondents to rely on Social Security as their primary source of income.
The large number of experienced boomers leaving the workforce — combined with reduced spending — is also expected to have a notable impact on the U.S. economy. A decline in GDP and a surge in entitlement spending will also create additional economic ripple effects. The report’s authors note that limited retirement assets and increasing lifespans will make annuities a more attractive option in the coming years.
Key Takeaways
- Thirty million Americans are expected to retire between 2024 and 2030.
- More than half (52.5%) will have to rely primarily on Social Security as their primary source of income, while another 14.6% will strain to meet their financial needs.
- The average expected Social Security benefit for peak boomers is only $22,000 annually.
- There are notable disparities in retirement preparedness when viewed by gender, ethnicity and education.
What we liked: The report highlights a growing problem that many were aware of but haven’t yet been able to fully quantify.
What we didn’t: The study was commissioned by the Retirement Income Institute and the Alliance for Lifetime Income, which are non-profits focused on promoting annuities. While annuities can be an attractive option for this group of retirees, the report does not mention other solutions.
Not sure which generation starts when? Check out our complete guide to the generations.
The Coming Wave of Unprepared Retirees
“Peak boomers” are defined as the largest cohort in history that will reach 65, the conventional retirement age, between 2024 and 2030. They number approximately 30 million Americans and include notable income disparities accentuated by race, gender and education. Most are not adequately financially prepared for retirement.
Financial assets leading into retirement: As of 2022, peak boomers had average resources of $225,000 in retirement savings, $156,000 in home equity and an expected SS income stream of $22,350 per year.
How prepared Boomers are for retirement
| Demographic | Median retirement saving | Median home equity | Exp. annual social security |
|---|---|---|---|
| All Peak Boomers | $224,714 | $146,388 | $22,342 |
| Gender | |||
| Male | $268,745 | $160,496 | $25,293 |
| Female | $185,086 | $152,929 | $19,207 |
| Race and Ethnicity | |||
| White | $298,927 | $180,577 | $22,782 |
| Black | $49,047 | $69,075 | $21,525 |
| Hispanic | $123,337 | $103,902 | $17,150 |
| Other | $231,527 | $194,806 | $25,208 |
| Education | |||
| No HS Diploma | $6,992 | 54,847 | $14,187 |
| HS Graduate | $75,300 | $122,429 | $19,695 |
| Some College/Assoc Degree | $210,506 | $119,180 | $21,902 |
| College Degree | $591,158 | $221,813 | $25,947 |
| Graduate Degree | $661,449 | $267,202 | $25,445 |
Reliance on social security income: Approximately a third (35%) of peak boomers will depend on Social Security income for at least 90% of their retirement, while slightly more than half (58%) will rely on those checks for at least half of their income.
The decline of defined benefit programs: The report notes that the decline in financial security in retirement is partly attributed to the delineation of defined benefit pensions and programs. Only a quarter of peak boomers have these plans, which have largely been replaced by “defined contribution” options like 401(k)s, where employees make the contributions.
“America has never seen so many people reaching retirement age over a short period and well over half of them will find it challenging to meet their needs through their retirements, let alone maintain their current standard of living,” said report co-author Robert Shapiro in a press release. “They lack the protected income that many older Boomers have from solid pensions or higher savings.”
Financial challenges: Between now and 2030, the largest and most financially challenged group of baby boomers will turn 65. Based on their assets, approximately two-thirds of peak boomers will be financially challenged and there are significant differences in assets based on race, gender and ethnicity. About half (52.5%) of peak boomers have less than $250,000 in assets and will rely primarily on Social Security. Another 15% also have assets of $500,000 or less and will strain to meet their needs.
Gender disparities: Peak boomer women are likely to face much greater financial struggles than men. The gender disparity in median retirement savings is $269,000 for men compared to $185,000 for women. Additionally, the median Social Security benefit for women is projected to be only $21,400, compared to $28,400 for men.
Educational disparities: The largest disparities in retirement resources are based on education. The median retirement savings of peak boomers with college degrees and graduate degrees are more than eight times that of high school graduates and nearly 90 times that of those without high school diplomas. College graduates also have greater home equity. While the differences in their expected Social Security payments are smaller, the benefits for college graduates are 32% higher than those for high school graduates and 83% higher than those for peak boomers without a high school diploma.
Asset instability: As the peak boomers turn 65, the value of their financial assets may not be stable due to the impact of market volatility on their retirement assets. Market volatility could intensify some of the existing disparities and volatility in housing prices could also affect the home equity of those who sell or use home equity loans.
Read more:
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Impact on the U.S. Economy
The effect of so many financially challenged boomers retiring at the same time will have a notable impact on the U.S. Economy.
Boomers and jobs: Peak boomers retiring by 2030 hold 10% of U.S. jobs and their retirements will raise business costs and affect GDP, productivity and consumer spending. The manufacturing, construction, healthcare, education and professional services industries can each expect to lose one to two million Boomer workers. While total employment will continue to grow as Gen Z and immigrants enter the labor force, filling these positions will raise business costs.
Decline in GDP growth: One estimate says the loss of experienced workers could dampen productivity by .9% to 1.3% and GDP growth by 7.3%. This could have a notable impact on the economy.
Consumer spending: Conservative spending and cost reductions by these consumers in retirement will also lead to a fall in consumer spending. Consumer spending is expected to decline 15.3% and hit the transportation sector the hardest, along with downdrafts in utilities, wholesale trade and real estate.
Entitlement programs: As retired boomers draw on Social Security and Medicare, their benefits will add more than $347 billion in entitlement spending by 2030, although mortality among all recipients will offset some of the costs.
Rethinking Retirement
The report authors note that employers can increase financial security in retirement by promoting annuities in their retirement plans.
Social security funding uncertainties: Overreliance on Social Security income may strain the system and create additional instability. Current law says only dedicated taxes like payroll taxes can be used to pay for Social Security retirement benefits and could dictate broad cuts in retirement benefits of approximately 20% starting in 2033.
Underestimation of lifespan: While many baby boomers underestimate how soon they will retire; they also underestimate how long they will live. It notes that people in their 50s and 60s underestimate their likelihood of living to 75 by an average of 25 percent points. According to the actuary life table at the Social Security Administration, the average remaining lifespan for a 65-year-old is now 84 for women and 82 for men.
Assured lifetime income streams: By understanding how long they will live, many peak boomers may not recognize the value of the assured lifetime income streams provided by annuities. Financial advisors estimate that retirees generally need to replace 70 percent of their working income to maintain their lifestyles during retirement. However, Social Security typically only replaces about 40%.
Policy considerations: Congress enacted the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the Securing a Strong Retirement Act of 2022 (SECURE 2.0). Both make it easier for employers to offer annuity options and to increase the amount individuals can move into a qualified longevity annuity contract (QLAC). The American Council on Capital Formation has also recommended a requirement that employer 401(k)s and other DC plans provide life annuities as a withdrawal option.