“They weren’t prepared even before the crisis,” Munnell told CNBC recently. The report noted that two years earlier, 37 percent of early boomer and 43 percent of late boomer households were at risk
“The gist of this whole story is that retirement ages are increasing as people live longer and health care costs rise, and at the same time the retirement system is retracting,” says Munnell.
Eligibility for full Social Security Insurancebenefits is gradually rising from age 65 to 67, Medicarepremiums will account for a bigger chunk of spending, increasing numbers of households will be taxed on their benefits, “and people really don’t save on their own,” says Munnell.
Some researchers believe most baby boomers are indeed wealthy enough to maintain their pre-retirement consumption, notes David Wise, an economist at the Harvard Kennedy School of Government. Wise, however, says it’s instructive to look at the real financial status of elderly retirees near the end of life.
“When you look at it that way it doesn’t look as favorable,” he says.
In a recent study, Wise and two colleagues found that “a substantial fraction of persons die with virtually no financial assets — 46.1 percent with less than $10,000 — and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support.”
Based on a replacement rate measure, “many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s,” the study notes. “Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the 'adequacy' of retirement preparation.”
Given these findings, expectations of a life-saving wealth transfer to the baby boomers may be overblown. Maybe half the boomer population will inherit money from parents, with a median amount of $40,000, according to Boston College’s Munnell.
“It’s not going to be enough,” she says.
People increasingly will rely on their 401(k) retirement plans, but the savings rate isn’t reassuring.
According to BC’s Center for Retirement Research, 62 percent of workers were covered only by traditional defined-benefit pension plans in 1983, compared with 17 percent in 2007. Those covered exclusively by 401(k) plans increased to 63 percent from 12 percent during the period.
“In theory 401(k) plans could provide adequate retirement income, but many individuals make mistakes at nearly every step along the way,” the report states, citing research showing that the median 401(k) and IRA balance for those near retirement was $78,000.
Annamaria Lusardi, economics professor at the George Washington University School of Business, points to a general lack of financial literacy and planning.
“A sizable group of the population has not even thought about retirement, so there are a lot of people that are approaching retirement without any preparation for it,” she says. “Even for the baby boom generation I think there are worries about a good fraction of them potentially not experiencing a good retirement.”