There are an estimated 77 million Baby Boomers in the United States1 who collectively drive about $7.6 trillion in annual economic activity.2 That’s a lot of people making decisions about how to spend a lot of dollars, but how much are Baby Boomers saving for retirement?
About 38% of Baby Boomers have less than $100,000 in retirement savings, and a staggering 42% report having no savings at all.3 Not surprisingly, only 28% feel they are doing a good job with financial preparation.3 This could be partially attributed to Baby Boomers being reticent to seek financial advice. More than half perceive it as cost prohibitive, about 33% choose to rely upon non-advisor advice and 29% don’t trust client-advisor relationships.4
On the other hand, even those Baby Boomers with advisors — on track for retirement or otherwise — may have bought into several common retirement myths that undercut a sense of urgency about saving for retirement. Here are three of the most popular myths and facts you can share to dispel them:
Myth #1: Medicare will cover everything.5
While Medicare eligibility kicks in the month a client turns 65 years old, some health care expenses will be ongoing and not covered without cost under the Medicare program. Provided a client doesn’t qualify for Medicaid, they’ll have to budget for premiums, copays, deductibles and possibly the cost of a Medicare supplement plan.5
Medicare also provides limited coverage for long-term care, so the cost of a long-term care insurance plan may also need to be factored into out-of-pocket expenses.5
Myth #2: About 70-80% of pre-retirement income is sufficient in retirement.5
A client may be able to nix job-related costs such as a professional wardrobe or commuter fees from their list of routine expenses, but it doesn’t necessarily free up cash. Leisure time in retirement may introduce activities such as traveling, frequently dining out, or taking up new hobbies that could easily offset any savings and possibly require more regular monthly income.5
Myth #3: Taxes will be reduced, if not eliminated, in retirement.5
Just because a client isn’t bringing home a steady paycheck doesn’t mean taxes will decrease in retirement. Taxes may fluctuate depending on several factors such as where a client resides, his or her overall financial situation, and any exemptions pertaining to pensions and Social Security income, but the likelihood of taxes “disappearing” is slim. A client needs to plan on paying taxes each year in retirement.5
There’s also a client’s qualified retirement plans to consider. IRA and 401(k) distributions are generally taxed as ordinary income, so money needs to be set aside to cover these costs.5
Helping your Baby Boomer clients better understand the truth behind popularly held but errant beliefs about retirement is a great way to build trust and guide them toward fitting financial decisions. So is being sensitive to the many anxieties clients may have as they enter or near retirement.
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1Madison.com, 9 Baby-Boomer Statistics That Will Blow You Away, July 29, 2017
2New York Business Journal, Money in America: Baby boomer retirement wave opens up big business opportunities, September 4, 2017
3401k Specialist, The Percentage of Baby Boomers With NO Retirement Savings, April 9, 2018
4Financial Advisor, As The Baby Boomers Retire, Many Don’t Get Financial Advice, February 23, 2017
5U.S. News & World Report, 7 Myths About Finances In Retirement, April 18, 2018